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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
SCHEDULE 14D-1
TENDER OFFER STATEMENT
PURSUANT TO SECTION 14(D)(1)
OF THE SECURITIES EXCHANGE ACT OF 1934
AND
SCHEDULE 13D
(AMENDMENT NO. 5)
UNDER THE SECURITIES ACT OF 1934
------------------------
DAWSON PRODUCTION SERVICES, INC.
(NAME OF SUBJECT COMPANY)
MIDLAND ACQUISITION CORP.
KEY ENERGY GROUP, INC.
(BIDDERS)
COMMON STOCK, PAR VALUE $.01 PER SHARE
(INCLUDING THE ASSOCIATED COMMON STOCK PURCHASE RIGHTS)
(TITLE OF CLASS OF SECURITIES)
239423106
(CUSIP NUMBER OF CLASS OF SECURITIES)
JACK D. LOFTIS, JR.
TWO TOWER CENTER, 20TH FLOOR
EAST BRUNSWICK, NEW JERSEY 08816
(732) 247-4822
(NAME, ADDRESS AND TELEPHONE NUMBER OF PERSON AUTHORIZED TO RECEIVE NOTICES AND
COMMUNICATIONS ON BEHALF OF BIDDER)
------------------------
WITH A COPY TO:
MICHAEL P. ROGAN
C. KEVIN BARNETTE
SKADDEN, ARPS, SLATE, MEAGHER & FLOM LLP
1440 NEW YORK AVENUE, N.W.
WASHINGTON, D.C. 20005
TELEPHONE: (202) 371-7000
CALCULATION OF FILING FEE
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Transaction valuation* Amount of filing fee**
$195,911,293 $39,183
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* For purposes of calculating the filing fee only. This amount assumes the
purchase at a purchase price of $17.50 per share of an aggregate of
11,194,931 shares. The amount reflects the purchase of 11,202,965 outstanding
shares and 812,766 shares issuable pursuant to the exercise of options, less
820,800 shares owned by Parent (as defined herein).
** The amount of the filing fee, calculated in accordance with Rule 0-11(d) of
the Securities Exchange Act of 1934, as amended, equals 1/50th of one
percentum of the aggregate value of cash offered by Midland Acquisition Corp.
for such number of shares.
[ ] Check box if any part of the fee is offset as provided by Rule 0-11(a)(2)
and identify the filing with which the offsetting fee was previously paid.
Identify the previous filing by registration statement number, or the Form
or Schedule and the date of its filing.
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Amount previously paid: Not applicable. Filing Party: Not applicable.
Form or registration Not applicable. Date Filed: Not applicable.
no.:
</TABLE>
Page 1 of 9 pages
Exhibit Index is located on page 9
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CUSIP NO. 239423106 14D-1 PAGE 2 OF 9
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1. NAMES OF REPORTING PERSONS
I.R.S. IDENTIFICATION NOS. OF ABOVE PERSONS (ENTITIES ONLY)
Midland Acquisition Corp. (E.I.N. 22-3598563)
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2. CHECK THE APPROPRIATE BOX IF A MEMBER OF A GROUP* (a) [ ]
(b) [X]
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3. SEC USE ONLY
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4. SOURCE OF FUNDS*
BK; AF
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5. CHECK BOX IF DISCLOSURE OF LEGAL PROCEEDINGS IS REQUIRED
PURSUANT TO ITEM 2(e) or 2(f)
[ ]
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6. CITIZENSHIP OR PLACE OF ORGANIZATION
New Jersey
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7. AGGREGATE AMOUNT BENEFICIALLY OWNED BY EACH REPORTING PERSON
15,100
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8. CHECK BOX IF THE AGGREGATE AMOUNT IN ROW (7) EXCLUDES
CERTAIN SHARES*
[ ]
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9. PERCENT OF CLASS REPRESENTED BY AMOUNT IN ROW (7)
0.1%
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10. TYPE OF REPORTING PERSON*
CO
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2
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CUSIP NO. 239423106 14D-1 PAGE 3 OF 9
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1. NAMES OF REPORTING PERSONS
I.R.S. IDENTIFICATION NOS. OF ABOVE PERSONS (ENTITIES ONLY)
Key Energy Group, Inc. (E.I.N. 04-2648081)
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2. CHECK THE APPROPRIATE BOX IF A MEMBER OF A GROUP* (a) [ ]
(b) [X]
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3. SEC USE ONLY
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4. SOURCE OF FUNDS*
BK
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5. CHECK BOX IF DISCLOSURE OF LEGAL PROCEEDINGS IS REQUIRED
PURSUANT TO ITEM 2(e) or 2(f)
[ ]
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6. CITIZENSHIP OR PLACE OF ORGANIZATION
Maryland
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7. AGGREGATE AMOUNT BENEFICIALLY OWNED BY EACH REPORTING PERSON
805,700
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8. CHECK BOX IF THE AGGREGATE AMOUNT IN ROW (7) EXCLUDES
CERTAIN SHARES*
[ ]
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9. PERCENT OF CLASS REPRESENTED BY AMOUNT IN ROW (7)
7.2%
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10. TYPE OF REPORTING PERSON*
CO
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</TABLE>
3
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This Schedule 14D-1 also constitutes Amendment No. 5 to the statement on
Schedule 13D of Midland Acquisition Corp. and Key Energy Group, Inc. filed on
June 15, 1998, as amended by Amendment No. 1 on June 29, 1998, Amendment No. 2
on July 21, 1998, Amendment No. 3 on August 5, 1998 and Amendment No. 4 on
August 12, 1998. The item numbers and responses thereto set forth below are in
accordance with the requirements of Schedule 14D-1.
ITEM 1. SECURITY AND SUBJECT COMPANY.
(a) The name of the subject company is Dawson Production Services, Inc., a
Texas corporation (the "Company"). The address of the Company's principal
executive offices is 112 E. Pecan Street, Suite 1000, San Antonio, Texas 78205.
(b) This Statement on Schedule 14D-1 relates to the offer by Midland
Acquisition Corp., a New Jersey corporation (the "Purchaser") and a wholly owned
subsidiary of Key Energy Group, Inc., a Maryland corporation ("Parent"), to
purchase all outstanding shares of common stock, par value $.01 per share (the
"Common Stock"), including the associated common stock purchase rights (the
"Rights" and, together with the Common Stock, the "Shares") issued pursuant to
the Rights Agreement, dated as of September 11, 1997, as amended, between the
Company and Harris Trust Company of New York, as Rights Agent, upon the terms
and subject to the conditions set forth in the Offer to Purchase, dated August
17, 1998, and in the related Letter of Transmittal (which, together with any
amendments or supplements thereto, constitute the "Offer"), at a purchase price
of $17.50 per Share, net to the tendering shareholder in cash, without interest
thereon.
The Offer is being made pursuant to an Agreement and Plan of Merger, dated
as of August 11, 1998 (the "Merger Agreement"), by and among Parent, the
Purchaser and the Company. The Merger Agreement provides that, following
consummation of the Offer and the satisfaction or waiver of the conditions set
forth in the Merger Agreement, the Purchaser will be merged with and into the
Company (the "Merger") and each Share then outstanding (other than Shares held
by Company as treasury stock, Shares held by Parent, the Purchaser or any other
wholly owned subsidiary of Parent and Shares held by any shareholders who
perfect any available appraisal rights under the Texas Business Corporation Act
(the "TBCA")) will be converted into the right to receive the Offer Price or any
higher price per Share paid in the Offer, in cash payable to the holder thereof
without interest thereon.
The Company has represented and warranted to Parent and the Purchaser in
the Merger Agreement that, as of August 11, 1998, 11,202,965 Shares were issued
and outstanding and 812,766 Shares were issuable pursuant to options granted
under the Company's stock option plan or otherwise granted to non-employee
directors of the Company. The Merger Agreement provides, among other things,
that the Company will not, without the prior written consent of Parent, issue
any additional Shares (except upon the exercise of options outstanding on the
date thereof) or options, warrants or rights exercisable for, or convertible
securities convertible into, additional Shares.
The information set forth in the Introduction of the Offer to Purchase
annexed hereto as Exhibit(a)(1) is incorporated herein by reference.
(c) The information set forth in Section 6 ("Price Range of Shares;
Dividends") of the Offer to Purchase is incorporated herein by reference.
ITEM 2. IDENTITY AND BACKGROUND.
(a)-(d); (g) This Statement is being filed by the Purchaser and Parent. The
information set forth in Section 8 ("Certain Information Concerning the
Purchaser and Parent") of the Offer to Purchase and Schedule I thereto is
incorporated herein by reference.
(e) and (f) During the last five years, neither the Purchaser, Parent, nor
any persons controlling the Purchaser or Parent, nor, to the best knowledge of
the Purchaser or Parent, any of the persons listed on Schedule I to the Offer to
Purchase, (i) has been convicted in a criminal proceeding (excluding traffic
violations or similar misdemeanors) or (ii) was a party to a civil proceeding of
a judicial or administrative body of competent jurisdiction as a result of which
any such person was or is subject to a judgment, decree or
4
<PAGE> 5
final order enjoining future violations of, or prohibiting activities subject
to, federal or state securities laws or finding any violation of such laws.
ITEM 3. PAST CONTACTS, TRANSACTIONS OR NEGOTIATIONS WITH THE SUBJECT COMPANY.
(a)-(b) The information set forth in the Introduction, Section 7 ("Certain
Information Concerning the Company"), Section 8 ("Certain Information Concerning
the Purchaser and Parent"), Section 10 ("Background of the Offer; Contacts with
the Company; the Merger Agreement and the Confidentiality Agreement") and
Section 11 ("Purpose of the Offer and the Merger; Plans for the Company") of the
Offer to Purchase is incorporated herein by reference.
ITEM 4. SOURCE AND AMOUNT OF FUNDS OR OTHER CONSIDERATION.
(a)-(b) The information set forth in Section 9 ("Source and Amount of
Funds") of the Offer to Purchase is incorporated herein by reference.
(c) Not applicable.
ITEM 5. PURPOSE OF THE TENDER OFFER AND PLANS OR PROPOSALS OF THE BIDDER.
(a)-(e) The information set forth in the Introduction, Section 10
("Background of the Offer; Contacts with the Company; the Merger Agreement and
the Confidentiality Agreement") and Section 11 ("Purpose of the Offer and the
Merger; Plans for the Company") of the Offer to Purchase is incorporated herein
by reference.
(f)-(g) The information set forth in Section 13 ("Effect of the Offer on
the Market for the Shares; NYSE Listing and Exchange Act Registration") of the
Offer to Purchase is incorporated herein by reference.
ITEM 6. INTEREST IN SECURITIES OF THE SUBJECT COMPANY.
(a) The information set forth in the Introduction and Section 8 ("Certain
Information Concerning the Purchaser and Parent") and Schedule II of the Offer
to Purchase are incorporated herein by reference.
(b) The information set forth in Section 8 ("Certain Information Concerning
the Purchaser and Parent") of the Offer to Purchase and Schedule II thereto is
incorporated herein by reference.
ITEM 7. CONTRACTS, ARRANGEMENTS, UNDERSTANDINGS OR RELATIONSHIPS WITH RESPECT
TO THE SUBJECT COMPANY'S SECURITIES.
The information set forth in the Introduction and Section 8 ("Certain
Information Concerning the Purchaser and Parent"), Section 10 ("Background of
the Offer; Contacts with the Company; the Merger Agreement and the
Confidentiality Agreement") and Section 11 ("Purpose of the Offer and the
Merger; Plans for the Company") of the Offer to Purchase is incorporated herein
by reference.
ITEM 8. PERSONS RETAINED, EMPLOYED OR TO BE COMPENSATED.
The information set forth in the Introduction and Section 16 ("Fees and
Expenses") of the Offer to Purchase is incorporated herein by reference.
ITEM 9. FINANCIAL STATEMENTS OF CERTAIN BIDDERS.
The information set forth in Section 8 ("Certain Information Concerning the
Purchaser and Parent") of the Offer to Purchase is incorporated herein by
reference.
ITEM 10. ADDITIONAL INFORMATION.
(a) Not applicable.
5
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(b)-(c) The information set forth in the Introduction and Section 15
("Certain Legal Matters; Regulatory Approvals") of the Offer to Purchase is
incorporated herein by reference.
(d) The information set forth in Section 13 ("Effect of the Offer on the
Market for Shares; NYSE Listing and Exchange Act Registration") and Section 15
("Certain Legal Matters; Regulatory Approvals") of the Offer to Purchase is
incorporated herein by reference.
(e) The information set forth in the Introduction and Section 15 ("Certain
Legal Matters; Regulatory Approvals") of the Offer to Purchase is incorporated
herein by reference.
(f) The information set forth in the Offer to Purchase and the Letter of
Transmittal, copies of which are attached hereto as Exhibits (a)(1) and (a)(2),
respectively, is incorporated herein by reference.
ITEM 11. MATERIAL TO BE FILED AS EXHIBITS.
(a)(1) Offer to Purchase, dated August 17, 1998.
(2) Letter of Transmittal.
(3) Notice of Guaranteed Delivery.
(4) Letter from the Dealer Manager to Brokers, Dealers, Commercial
Banks, Trust Companies and other Nominees.
(5) Letter to clients for use by Brokers, Dealers, Commercial Banks,
Trust Companies and other Nominees.
(6) Guidelines for Certification of Taxpayer Identification Number on
Substitute Form W-9
(7) Summary Advertisement as published on August 17, 1998.
(8) Text of Press Release, dated August 11, 1998, issued by Parent
(incorporated by reference to Amendment No. 4 of the Schedule 13D,
filed by Parent and the Purchaser on August 12, 1998).
(9) Text of Press Release, dated August 17, 1998, issued by Parent.
(b)(1) Commitment Letter between Parent and PNC Bank, N.A., dated as of
August 17, 1998.
(2) Engagement Letter between Parent and Bear, Stearns & Co. Inc., dated
as of May 8, 1998.
(3) Engagement Letter between Parent and Dain Rauscher Wessels, dated as
of July 2, 1998.
(c)(1) Agreement and Plan of Merger, dated as of August 11, 1998 by and
among Parent, the Purchaser and the Company (incorporated by
reference to Amendment No. 4 of the Schedule 13D, filed by Parent
and the Purchaser on or about August 12, 1998).
(2) Confidentiality Agreement, dated as of August 8, 1998 by and among
Parent, the Purchaser and the Company.
(d) Not applicable.
(e) Not applicable.
(f) Not applicable.
6
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SIGNATURE
After due inquiry and to the best of my knowledge and belief, I certify
that the information set forth in this statement is true, complete and correct.
Dated: August 17, 1998
MIDLAND ACQUISITION CORP.
By: /s/ STEPHEN E. MCGREGOR
------------------------------------
Name: Stephen E. McGregor
Title: President and Chief
Executive Officer
KEY ENERGY GROUP, INC.
By: /s/ FRANCIS D. JOHN
------------------------------------
Name: Francis D. John
Title: Chairman, President and
Chief Executive Officer
8
<PAGE> 8
EXHIBIT INDEX
(a)(1) Offer to Purchase, dated August 17, 1998.
(2) Letter of Transmittal.
(3) Notice of Guaranteed Delivery.
(4) Letter from the Dealer Manager to Brokers, Dealers, Commercial
Banks, Trust Companies and other Nominees.
(5) Letter to clients for use by Brokers, Dealers, Commercial Banks,
Trust Companies and other Nominees.
(6) Guidelines for Certification of Taxpayer Identification Number on
Substitute Form W-9
(7) Summary Advertisement as published on August 17, 1998.
(8) Text of Press Release, dated August 11, 1998, issued by Parent
(incorporated by reference to Amendment No. 4 of the Schedule 13D,
filed by Parent and the Purchaser on August 12, 1998).
(9) Text of Press Release, dated August 17, 1998, issued by Parent.
(b)(1) Commitment Letter between Parent and PNC Bank, N.A., dated as of
August 17, 1998.
(2) Engagement Letter between Parent and Bear, Stearns & Co. Inc., dated
as of May 8, 1998.
(3) Engagement Letter between Parent and Dain Rauscher Wessels, dated as
of July 2, 1998.
(c)(1) Agreement and Plan of Merger, dated as of August 11, 1998 by and
among Parent, the Purchaser and the Company (incorporated by
reference to Amendment No. 4 of the Schedule 13D, filed by Parent
and the Purchaser on or about August 12, 1998).
(2) Confidentiality Agreement, dated as of August 8, 1998 by and among
Parent, the Purchaser and the Company.
(d) Not applicable.
(e) Not applicable.
(f) Not applicable.
9
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EXHIBIT (a)(1)
OFFER TO PURCHASE FOR CASH
ALL OUTSTANDING SHARES OF COMMON STOCK
(INCLUDING THE ASSOCIATED COMMON STOCK PURCHASE RIGHTS)
OF
DAWSON PRODUCTION SERVICES, INC.
BY
MIDLAND ACQUISITION CORP.
A WHOLLY OWNED SUBSIDIARY
OF
KEY ENERGY GROUP, INC.
AT
$17.50 NET PER SHARE
THE OFFER AND WITHDRAWAL RIGHTS WILL EXPIRE AT 12:00 MIDNIGHT, NEW YORK CITY
TIME,
ON MONDAY, SEPTEMBER 14, 1998, UNLESS THE OFFER IS EXTENDED.
THE OFFER IS BEING MADE PURSUANT TO AN AGREEMENT AND PLAN OF MERGER (THE
"MERGER AGREEMENT") DATED AS OF AUGUST 11, 1998 BY AND AMONG KEY ENERGY GROUP,
INC. ("PARENT"), MIDLAND ACQUISITION CORP. (THE "PURCHASER") AND DAWSON
PRODUCTION SERVICES, INC. (THE "COMPANY"). THE BOARD OF DIRECTORS OF THE COMPANY
HAS UNANIMOUSLY APPROVED THE MERGER AGREEMENT AND THE TRANSACTIONS CONTEMPLATED
THEREBY, INCLUDING THE OFFER AND THE MERGER (AS DEFINED HEREIN), AND DETERMINED
THAT THE TERMS OF THE OFFER AND THE MERGER ARE FAIR TO, AND IN THE BEST
INTERESTS OF, THE COMPANY'S SHAREHOLDERS, AND UNANIMOUSLY RECOMMENDS THAT
SHAREHOLDERS ACCEPT THE OFFER AND TENDER THEIR SHARES (AS DEFINED HEREIN).
THE OFFER IS CONDITIONED UPON, AMONG OTHER THINGS, (1) THERE BEING VALIDLY
TENDERED AND NOT WITHDRAWN PRIOR TO THE EXPIRATION DATE (AS DEFINED HEREIN) A
NUMBER OF SHARES WHICH, WHEN ADDED TO THE NUMBER OF SHARES BENEFICIALLY OWNED BY
PARENT OR THE PURCHASER, CONSTITUTES A MAJORITY OF THE TOTAL NUMBER OF SHARES OF
THE COMPANY OUTSTANDING ON A FULLY DILUTED BASIS AT THE TIME SHARES ARE ACCEPTED
FOR PAYMENT PURSUANT TO THE OFFER AND (2) THE PURCHASER HAVING RECEIVED FUNDS,
PURSUANT TO AN EXISTING FINANCING COMMITMENT, IN AN AMOUNT SUFFICIENT TO ENABLE
THE PURCHASER TO PURCHASE ALL SHARES OUTSTANDING PURSUANT TO THE OFFER AND THE
MERGER AND HAVING OBTAINED A DEFINITIVE FINANCING COMMITMENT FOR CERTAIN BRIDGE
FINANCING TO REFINANCE CERTAIN INDEBTEDNESS OF THE COMPANY. THE OFFER IS ALSO
SUBJECT TO OTHER TERMS AND CONDITIONS CONTAINED IN THIS OFFER TO PURCHASE. SEE
SECTION 14.
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IMPORTANT
Any shareholder desiring to tender all or any portion of such shareholder's
Shares should either (i) complete and sign the Letter of Transmittal (or a
facsimile thereof) in accordance with the instructions in the Letter of
Transmittal and mail or deliver it, together with the certificate(s)
representing tendered Shares (the "Share Certificates") and any other required
documents to the Depositary (as defined herein) or tender such Shares pursuant
to the procedures for book-entry transfer set forth in Section 3 or (ii) request
such shareholder's broker, dealer, commercial bank, trust company or other
nominee to effect the tender for such shareholder. A shareholder whose Shares
are registered in the name of a broker, dealer, commercial bank, trust company
or other nominee must contact such broker, dealer, commercial bank, trust
company or other nominee if such shareholder desires to tender such Shares.
A shareholder who desires to tender Shares and whose Share Certificates are
not immediately available, or who cannot comply with the procedures for
book-entry transfer described in this Offer to Purchase on a timely basis, may
tender such Shares by following the procedures for guaranteed delivery set forth
herein.
Questions and requests for assistance, or for additional copies of this
Offer to Purchase, the Letter of Transmittal or other tender offer materials,
may be directed to the Information Agent or the Dealer Manager at their
respective addresses and telephone numbers set forth on the back cover of this
Offer to Purchase. Holders of Shares may also contact brokers, dealers,
commercial banks and trust companies for assistance concerning the Offer.
------------------
The Dealer Manager for the Offer is:
BEAR, STEARNS & CO. INC.
August 17, 1998
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TABLE OF CONTENTS
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PAGE
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Introduction..................................................... 1
The Tender Offer................................................. 3
1. Terms of the Offer.......................................... 3
2. Acceptance for Payment and Payment for Shares............... 5
3. Procedures for Tendering Shares............................. 6
4. Withdrawal Rights........................................... 9
5. Certain U.S. Federal Income Tax Consequences................ 9
6. Price Range of Shares; Dividends............................ 10
7. Certain Information Concerning the Company.................. 10
8. Certain Information Concerning the Purchaser and Parent..... 13
9. Source and Amount of Funds.................................. 15
10. Background of the Offer; Contacts with the Company; the
Merger Agreement and the Confidentiality Agreement........ 16
11. Purpose of the Offer and the Merger; Plans for the
Company................................................... 28
12. Dividends and Distributions................................. 29
13. Effect of the Offer on the Market for the Shares; NYSE
Listing and Exchange Act Registration..................... 29
14. Certain Conditions of the Offer............................. 30
15. Certain Legal Matters; Regulatory Approvals................. 32
16. Fees and Expenses........................................... 33
17. Miscellaneous............................................... 34
Schedule I -- Information Concerning the Directors and
Executive Officers of Parent and the Purchaser............ I-1
Schedule II -- Transactions in Shares During the Past 60
Days by Parent and the Purchaser.......................... II-1
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To the Holders of Shares of Common Stock of Dawson Production Services, Inc.:
INTRODUCTION
Midland Acquisition Corp., a New Jersey corporation (the "Purchaser") and a
wholly owned subsidiary of Key Energy Group, Inc., a Maryland corporation
("Parent"), hereby offers to purchase all outstanding shares of common stock,
par value $.01 per share (the "Common Stock"), of Dawson Production Services,
Inc., a Texas corporation (the "Company"), including the associated common stock
purchase rights (the "Rights" and, together with the Common Stock, the "Shares")
issued pursuant to the Rights Agreement, dated as of September 11, 1997, as
amended (the "Rights Agreement"), between the Company and Harris Trust Company
of New York, as Rights Agent, at a price of $17.50 per Share net to the seller
in cash, without interest thereon (the "Offer Price"), upon the terms and
subject to the conditions set forth in this Offer to Purchase and in the related
Letter of Transmittal (which, together with any amendments or supplements hereto
or thereto, collectively constitute the "Offer").
Tendering shareholders will not be obligated to pay brokerage fees or
commissions or, except as set forth in Instruction 6 of the Letter of
Transmittal, stock transfer taxes on the purchase of Shares pursuant to the
Offer. However, any tendering shareholder or other payee who fails to complete
and sign the Substitute Form W-9 that is included in the Letter of Transmittal
may be subject to a required backup federal income tax withholding of 31% of the
gross proceeds payable to such shareholder or other payee pursuant to the Offer.
See Section 3. The Purchaser will pay all charges and expenses of Bear, Stearns
& Co. Inc., as Dealer Manager (in such capacity, the "Dealer Manager"), The Bank
of New York, as Depositary (the "Depositary"), and Innisfree M&A Incorporated,
as Information Agent (the "Information Agent"), incurred in connection with the
Offer. See Section 16.
THE OFFER IS CONDITIONED UPON, AMONG OTHER THINGS, (1) THERE BEING VALIDLY
TENDERED AND NOT WITHDRAWN PRIOR TO THE EXPIRATION DATE (AS DEFINED HEREIN) A
NUMBER OF SHARES WHICH, WHEN ADDED TO THE NUMBER OF SHARES BENEFICIALLY OWNED BY
PARENT OR THE PURCHASER, CONSTITUTES A MAJORITY OF THE TOTAL NUMBER OF SHARES
OUTSTANDING ON A FULLY DILUTED BASIS AT THE TIME SHARES ARE ACCEPTED FOR PAYMENT
PURSUANT TO THE OFFER (THE "MINIMUM CONDITION") AND (2) THE PURCHASER HAVING
RECEIVED FUNDS, PURSUANT TO AN EXISTING FINANCING COMMITMENT, IN AN AMOUNT
SUFFICIENT TO ENABLE THE PURCHASER TO PURCHASE ALL SHARES OUTSTANDING PURSUANT
TO THE OFFER AND THE MERGER (AS DEFINED HEREIN), AND HAVING OBTAINED A
DEFINITIVE FINANCING COMMITMENT FOR CERTAIN BRIDGE FINANCING TO REFINANCE
CERTAIN INDEBTEDNESS OF THE COMPANY (THE "FINANCING CONDITION").
The Minimum Condition. The Minimum Condition requires that the number of
Shares tendered and not withdrawn before the Expiration Date, together with the
Shares beneficially owned by Parent or the Purchaser as of such time, represent
at least a majority of the Shares outstanding on a fully diluted basis at the
time Shares are accepted for payment pursuant to the Offer. The Purchaser and
Parent beneficially own 820,800 Shares, all of which were acquired in open
market purchases. For purposes of the Offer, "fully diluted basis" assumes that
all outstanding stock options have been exercised.
The Company has represented and warranted to Parent and the Purchaser in
the Merger Agreement (as defined below) that, as of August 11, 1998, 11,202,965
Shares were issued and outstanding and 812,766 Shares were issuable pursuant to
options granted under the Company's stock option plan or otherwise granted to
non-employee directors of the Company. The Merger Agreement provides, among
other things, that the Company will not, without the prior written consent of
Parent, issue any additional Shares (except upon the exercise of options
outstanding on the date thereof) or options, warrants or rights exercisable for,
or convertible securities convertible into, additional Shares.
Based on the foregoing and assuming no additional Shares (or options,
warrants or rights exercisable for, or convertible securities convertible into,
Shares) have been issued since August 11, 1998 (other than Shares
<PAGE> 4
issued pursuant to the exercise of the stock options referred to above), there
would be 12,015,731 Shares outstanding on a fully diluted basis and if 5,187,066
Shares were validly tendered and not withdrawn prior to the Expiration Date
pursuant to the terms of the Offer, the Minimum Condition would be satisfied.
The Financing Condition. The Financing Condition requires that the
Purchaser shall have received funds under the Commitment Letter (as defined
below) to enable the Purchaser to purchase all Shares outstanding pursuant to
the Offer and the Merger and shall have obtained a definitive financing
commitment on terms substantially similar to those contained in either of the
Proposed Bridge Arrangements (as defined below) to refinance certain
indebtedness of the Company. The Purchaser estimates that the total amount of
funds required to acquire all Shares outstanding on a fully diluted basis, to
refinance certain existing indebtedness of Parent and the Company (excluding the
Senior Notes (as defined herein)) and to pay all fees and expenses related
thereto will be approximately $414 million. Parent has received a commitment
(the "Commitment Letter") for up to $550 million of senior financing from PNC
Capital Markets, Inc. ("PNC Capital") and PNC Bank, National Association ("PNC
Bank" and, together with PNC Capital, "PNC") subject to satisfaction of the
conditions set forth therein to pay for all Shares acquired in the Offer and the
Merger, to refinance certain existing debt of Parent and the Company and to pay
related fees and expenses. At the time it entered into the Merger Agreement (as
defined below), Parent had received proposed arrangements from Bear, Stearns &
Co. Inc. ("Bear Stearns") and Lehman Brothers Inc. and Lehman Commercial Paper
Inc. (together, "Lehman") with respect to bridge financing (each a "Proposed
Bridge Arrangement" and together the "Proposed Bridge Arrangements") in the
event holders of the Company's 9 3/8% Senior Notes due 2007 (the "Senior Notes")
exercise redemption rights upon the change of control of the Company. The
Proposed Bridge Arrangements generally contemplated that senior subordinated
financing would be available to Parent in an amount sufficient, together with
the financing contemplated by the Commitment Letter, to fund any required
repurchases of Senior Notes. Parent is engaged in discussions with Lehman with
the goal of obtaining a definitive commitment for the financing contemplated by
the Proposed Bridge Arrangement with Lehman. See Section 9. Under the terms of
the Merger Agreement, Parent and the Purchaser have agreed to use their best
efforts to obtain, pursuant to the Commitment Letter and on terms substantially
similar to those contained in either of the Proposed Bridge Arrangements,
funding for the Offer and the Merger, for the payment of all fees and expenses
related thereto and, if necessary, for the refinancing of certain indebtedness
of the Company. Parent and the Purchaser have also agreed to use their best
efforts to maintain the ability to accept proposed bridge arrangements on terms
substantially similar to those contained in either of the Proposed Bridge
Arrangements and the Company has agreed to cooperate with Parent and the
Purchaser with respect to consummating such financing. See Sections 9 and 10.
The Offer is being made pursuant to an Agreement and Plan of Merger, dated
as of August 11, 1998 (the "Merger Agreement"), by and among Parent, the
Purchaser and the Company. The Merger Agreement provides that, following
consummation of the Offer and the satisfaction or waiver of the conditions set
forth in the Merger Agreement, the Purchaser will be merged with and into the
Company (the "Merger") and each Share then outstanding (other than Shares held
by Company as treasury stock, Shares held by Parent, the Purchaser or any other
wholly owned subsidiary of Parent and Shares held by any shareholders who
perfect any available appraisal rights under the Texas Business Corporation Act
(the "TBCA")) will be converted into the right to receive the Offer Price or any
higher price per Share paid in the Offer, in cash payable to the holder thereof
without interest thereon. The Merger Agreement is more fully described in
Section 10.
THE BOARD OF DIRECTORS OF THE COMPANY HAS UNANIMOUSLY APPROVED THE MERGER
AGREEMENT AND THE TRANSACTIONS CONTEMPLATED THEREBY, INCLUDING THE OFFER AND THE
MERGER, AND DETERMINED THAT THE TERMS OF THE OFFER AND THE MERGER ARE FAIR TO,
AND IN THE BEST INTERESTS OF, THE COMPANY'S SHAREHOLDERS, AND UNANIMOUSLY
RECOMMENDS THAT SHAREHOLDERS ACCEPT THE OFFER AND TENDER THEIR SHARES.
Morgan Stanley & Co. Incorporated, the Company's financial advisor ("Morgan
Stanley"), has delivered to the Company's Board of Directors (the "Company
Board") its written opinion (the "Fairness Opinion") to the effect that the
consideration to be received by the holders of Shares pursuant to the Offer and
under the terms of the Merger Agreement is fair to such holders from a financial
point of view. The Fairness Opinion is
2
<PAGE> 5
set forth in full as an exhibit to the Company's Solicitation/Recommendation
Statement on Schedule 14D-9 (the "Schedule 14D-9") that is being mailed to
shareholders of the Company concurrently herewith.
The Merger Agreement provides that, upon the purchase of and payment for
any Shares by Parent or any of its subsidiaries that represent at least a
majority of the Shares outstanding (on a fully diluted basis), which would be
the case if the Minimum Condition were satisfied and Purchaser were to accept
for payment Shares tendered pursuant to the Offer, Parent shall be entitled to
designate such number of directors, rounded up to the next whole number, on the
Company Board so that the percentage of Parent's designees on the Company Board
equals the percentage of outstanding Shares beneficially owned by Parent, the
Purchaser and their affiliates. The Merger Agreement further provides that the
Company shall, upon the request of the Purchaser, use its best efforts promptly
to either increase the size of the Company Board or, at the Company's election,
secure the resignations of incumbent directors, and to cause Parent's designees
to be elected to the Company Board.
Consummation of the Merger is conditioned upon, among other things, the
approval and adoption by the requisite vote of shareholders of the Company of
the Merger Agreement, if required by applicable law and the Company's Amended
and Restated Articles of Incorporation (the "Company Articles") in order to
consummate the Merger. See Section 10. Under the Company Articles, consistent
with the TBCA, except as otherwise provided below, the affirmative vote of the
holders of a majority of the outstanding Shares is required to approve the
Merger Agreement and the Merger.
Under the TBCA, if the Purchaser acquires, pursuant to the Offer or
otherwise, at least 90% of the outstanding Shares, the Purchaser will be able to
approve the Merger Agreement and the transactions contemplated thereby without a
vote of the shareholders. In such event, Parent, the Purchaser and the Company
have agreed in the Merger Agreement to take, at the request of Parent and
subject to the satisfaction of the conditions set forth in the Merger Agreement,
all necessary and appropriate action to cause the Merger to become effective as
soon as practicable after such acquisition, without a meeting of shareholders,
in accordance with the TBCA and the New Jersey Business Corporation Act
("NJBCA"). If however, the Purchaser does not acquire at least 90% of the
outstanding Shares pursuant to the Offer or otherwise and a vote of shareholders
is required under the TBCA, a significantly longer period of time would be
required to effect the Merger.
The Rights. The Company has distributed one Right for each outstanding
share of Common Stock pursuant to the Rights Agreement. Based on information
disclosed by the Company in the Schedule 14D-9, in connection with the Company
entering into the Merger Agreement, effective as of August 11, 1998, the Rights
Agreement was amended (the "Rights Amendment") to prevent the approval,
execution and delivery of the Merger Agreement and the consummation of any of
the transactions contemplated thereby, including the Offer, from resulting in
(i) Parent, the Purchaser or any of their affiliates being deemed to be an
Acquiring Person (as defined in the Rights Agreement), (ii) the distribution of
separate Rights certificates, or (iii) the occurrence of a Distribution Date,
Shares Acquisition Date, Flip-In Event or Triggering Event (as such terms are
defined in the Rights Agreement). The Company has represented in the Merger
Agreement that the Rights Amendment will be sufficient to render the Rights
inoperative with respect to any acquisition of Shares by Parent, the Purchaser
or any of their affiliates pursuant to the Merger Agreement and that, as a
result of the Rights Amendment, the Rights will not be exercisable upon or at
any time after the acceptance for payment of Shares pursuant to the Offer.
THIS OFFER TO PURCHASE AND THE LETTER OF TRANSMITTAL CONTAIN IMPORTANT
INFORMATION WHICH SHOULD BE READ CAREFULLY BEFORE ANY DECISION IS MADE WITH
RESPECT TO THE OFFER.
THE TENDER OFFER
1. TERMS OF THE OFFER. Upon the terms and subject to the conditions of the
Offer (including, if the Offer is extended or amended, the terms and conditions
of any extension or amendment), the Purchaser will accept for payment and pay
for all Shares validly tendered prior to the Expiration Date and not withdrawn
in accordance with Section 4. The term "Expiration Date" means 12:00 Midnight,
New York City time, on
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<PAGE> 6
Monday, September 14, 1998, unless and until the Purchaser (subject to the terms
of the Merger Agreement) shall have extended the period of time during which the
Offer is open, in which event the term "Expiration Date" shall mean the latest
time and date at which the Offer, as so extended by the Purchaser, shall expire.
Consummation of the Offer is conditioned upon, among other things,
satisfaction of the Minimum Condition and the Financing Condition and the
expiration or termination of any applicable waiting period imposed by the
Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended (the "HSR
Act"). If any or all of such conditions are not satisfied or any or all of the
other events set forth in Section 14 shall have occurred or shall be determined
by the Purchaser to have occurred prior to the Expiration Date, the Purchaser
reserves the right (but shall not be obligated) to (i) decline to purchase any
or all of the Shares tendered and terminate the Offer, and return all such
tendered Shares to tendering shareholders, (ii) waive any or all conditions, to
the extent permitted under the terms of the Merger Agreement, and, subject to
complying with applicable rules and regulations of the Securities and Exchange
Commission (the "Commission"), purchase all Shares validly tendered or (iii)
extend the Offer and, subject to the right of shareholders to withdraw Shares
until the Expiration Date, retain the Shares which have been tendered during the
period or periods for which the Offer is extended. The Merger Agreement provides
that the Purchaser may not, without the written consent of the Company, amend or
waive the Minimum Condition, decrease the Offer Price, decrease the number of
Shares sought or amend any other condition of the Offer in any manner adverse to
the holders of Shares (other than with respect to insignificant changes or
amendments), except that if on the initial Expiration Date, or any extension
thereof, all conditions to the Offer shall not have been satisfied or waived,
the Offer may be extended from time to time until December 31, 1998. In
addition, the Merger Agreement provides that the Offer Price may be increased
and the Offer may be extended to the extent required by law in connection with
such increase, in each case without the consent of the Company.
Subject to the terms of the Merger Agreement, the Purchaser expressly
reserves the right, in its sole discretion, at any time and from time to time,
to extend for any reason the period of time during which the Offer is open,
including as a result of the occurrence of any of the events specified in
Section 14, by giving oral or written notice of such extension to the Depositary
and by making a public announcement thereof, as described below. During any such
extension, all Shares previously tendered and not withdrawn will remain subject
to the Offer, subject to the rights of a tendering shareholder to withdraw any
tendered Shares. See Section 4.
Subject to the terms of the Merger Agreement and to the applicable
regulations of the Commission, the Purchaser also expressly reserves the right,
in its sole discretion, at any time and from time to time, (i) to delay
acceptance for payment of, or, regardless of whether such Shares were
theretofore accepted for payment, payment for, any Shares pending receipt of any
governmental or regulatory approvals specified in Section 15, (ii) to terminate
the Offer and not accept for payment any Shares if any of the conditions
referred to in Section 14 have not been satisfied or upon the occurrence of any
of the events specified in Section 14 and (iii) to waive any condition or
otherwise amend the Offer in any respect by giving oral or written notice of
such delay, termination, waiver or amendment to the Depositary and by making a
public announcement thereof, as described below.
The Purchaser acknowledges that (a) Rule 14e-1(c) under the Securities
Exchange Act of 1934, as amended (the "Exchange Act"), requires the Purchaser to
pay the consideration offered or return the Shares tendered promptly after the
termination or withdrawal of the Offer and (b) the Purchaser may not delay
acceptance for payment of, or payment for (except as provided in clause (i) of
the preceding paragraph), any Shares upon the occurrence of any of the events
specified in Section 14 without extending the period of time during which the
Offer is open.
Any such extension, delay, termination, waiver or amendment will be
followed as promptly as practicable by public announcement thereof, such
announcement in the case of an extension to be made no later than 9:00 a.m., New
York City time, on the next business day after the previously scheduled
Expiration Date. Subject to applicable law (including Rules 14d-4(c), 14d-6(d)
and 14e-1 under the Exchange Act, which require that material changes be
promptly disseminated to shareholders in a manner reasonably designed to inform
them of such changes) and without limiting the manner in which the Purchaser may
choose to make
4
<PAGE> 7
any public announcement, the Purchaser shall have no obligation to publish,
advertise or otherwise communicate any such public announcement other than by
issuing a press release or other public announcement.
If the Purchaser makes a material change in the terms of the Offer or the
information concerning the Offer or if it waives a material condition of the
Offer, the Purchaser will extend the Offer to the extent required by Rules
14d-4(c), 14d-6(d) and 14e-1 under the Exchange Act.
The minimum period during which an offer must remain open following
material changes in the terms of the offer, other than a change in price or a
change in percentage of securities sought or a change in any soliciting dealer's
fee, will depend upon the facts and circumstances, including the relative
materiality, of the changes. With respect to a change in price or a change in
the percentage of securities sought, a minimum of 10 business days is generally
required to allow for adequate dissemination and investor response. Accordingly,
if, prior to the Expiration Date, the Purchaser should decide to decrease the
number of Shares being sought or to decrease the consideration being offered in
the Offer (neither of which, pursuant to the terms of Merger Agreement, may be
done without the written consent of the Company) or to increase the
consideration being offered in the Offer, such decrease in the number of Shares
being sought or such increase or decrease in the consideration being offered
will be applicable to all shareholders whose Shares are accepted for payment
pursuant to the Offer and if at the time notice of any such decrease in the
number of Shares being sought or such increase or decrease in the consideration
being offered is first published, sent or given to holders of Shares the Offer
is scheduled to expire at any time earlier than the period ending on the tenth
business day from and including the date that such notice is first so published,
sent or given, the Offer will be extended at least until the expiration of such
ten-business-day period. For purposes of the Offer, a "business day" means any
day other than a Saturday, Sunday or federal holiday and consists of the time
period from 12:01 a.m. through 12:00 Midnight, New York City time.
The Company has provided the Purchaser with the Company's shareholder lists
and security position listings for the purpose of disseminating the Offer to
holders of Shares. This Offer to Purchase and the related Letter of Transmittal
and, if required, other relevant materials, will be mailed to record holders of
Shares and to brokers, dealers, commercial banks, trust companies and similar
persons whose names, or the names of whose nominees, appear on the shareholder
lists of the Company or, if applicable, who are listed as participants in a
clearing agency's security position listing, for subsequent transmittal to
beneficial owners of Shares.
2. ACCEPTANCE FOR PAYMENT AND PAYMENT FOR SHARES. Upon the terms and
subject to the conditions of the Offer (including, if the Offer is extended or
amended, the terms and conditions of any such extension or amendment), the
Purchaser will purchase, by accepting for payment, and will pay for, all Shares
validly tendered prior to the Expiration Date (and not properly withdrawn in
accordance with Section 4) as soon as practicable after the later to occur of
(i) the Expiration Date and (ii) the satisfaction or waiver of the conditions
set forth in Section 14. Any determination concerning the satisfaction of such
terms and conditions shall be within the sole discretion of the Purchaser. See
Section 14. The Purchaser expressly reserves the right, in its sole discretion,
to delay acceptance for payment of, or, subject to the applicable rules of the
Commission, payment for, Shares pending receipt of any governmental or
regulatory approvals specified in Section 15.
In all cases, payment for Shares tendered and accepted for payment pursuant
to the Offer will be made only after timely receipt by the Depositary of (i)(A)
the Share Certificates or (B) timely confirmation of a book-entry transfer (a
"Book-Entry Confirmation") of such Shares into the Depositary's account at The
Depository Trust Company (the "Book-Entry Transfer Facility") pursuant to the
procedure set forth in Section 3, (ii)(A) the Letter of Transmittal (or
facsimile thereof), properly completed and duly executed, or (B) an Agent's
Message (as defined below) in connection with a book-entry transfer and (iii)
any other documents required by the Letter of Transmittal.
The term "Agent's Message" means a message, transmitted by the Book-Entry
Transfer Facility to, and received by, the Depositary and forming a part of a
Book-Entry Confirmation, which states that the Book-Entry Transfer Facility has
received an express acknowledgment from the participant in the Book-Entry
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<PAGE> 8
Transfer Facility tendering the Shares that such participant has received and
agrees to be bound by the terms of the Letter of Transmittal and that the
Purchaser may enforce such agreement against the participant.
For purposes of the Offer, the Purchaser will be deemed to have accepted
for payment, and thereby purchased, Shares validly tendered and not withdrawn
if, as and when the Purchaser gives oral or written notice to the Depositary of
the Purchaser's acceptance of payment for such Shares. Payment for Shares
accepted for payment pursuant to the Offer will be made by deposit of the
aggregate purchase price therefor with the Depositary, which will act as agent
for tendering shareholders for the purpose of receiving payment from the
Purchaser and transmitting payment to such tendering shareholders. UNDER NO
CIRCUMSTANCES WILL INTEREST BE PAID ON THE PURCHASE PRICE OF THE SHARES TO BE
PAID BY THE PURCHASER, REGARDLESS OF ANY EXTENSION OF THE OFFER OR ANY DELAY IN
MAKING SUCH PAYMENT.
Upon the deposit of funds with the Depositary for the purpose of making
payments to tendering shareholders, the Purchaser's obligation to make such
payment shall be satisfied and tendering shareholders must thereafter look
solely to the Depositary for payment of amounts owed to them by reason of the
acceptance for payment of Shares pursuant to the Offer. If, for any reason
whatsoever, acceptance for payment of or payment for any Shares tendered
pursuant to the Offer is delayed, or the Purchaser is unable to accept for
payment or pay for Shares tendered pursuant to the Offer, then, without
prejudice to the Purchaser's rights set forth herein, the Depositary may,
nevertheless, on behalf of the Purchaser and subject to Rule 14e-1(c) under the
Exchange Act, retain tendered Shares and such Shares may not be withdrawn except
to the extent that the tendering shareholder is entitled to and duly exercises
withdrawal rights as described in Section 4. The Purchaser will pay any stock
transfer taxes incident to the transfer to it of validly tendered Shares, except
as otherwise provided in the Letter of Transmittal, as well as any charges and
expenses of the Depositary and the Information Agent.
If any tendered Shares are not accepted for payment for any reason pursuant
to the terms and conditions of the Offer or if Share Certificates are submitted
evidencing more Shares than are tendered, Share Certificates evidencing
unpurchased or untendered Shares will be returned, without expense to the
tendering shareholder (or, in the case of Shares tendered by book-entry transfer
into the Depositary's account at the Book-Entry Transfer Facility pursuant to
the procedure set forth in Section 3, such Shares will be credited to an account
maintained at the Book-Entry Transfer Facility), as promptly as practicable
following the expiration or termination of the Offer.
The Purchaser reserves the right to transfer or assign, in whole at any
time or in part from time to time, to one or more of its affiliates the right to
purchase all or any portion of the Shares tendered pursuant to the Offer, but
any such transfer or assignment will not relieve the Purchaser of its
obligations under the Offer and will in no way prejudice the rights of tendering
shareholders to receive payment for Shares validly tendered and accepted for
payment pursuant to the Offer.
3. PROCEDURES FOR TENDERING SHARES.
Valid Tender of Shares. Except as set forth below, in order for Shares to
be validly tendered pursuant to the Offer, the Letter of Transmittal or a
facsimile thereof, properly completed and duly executed, with any required
signature guarantees, or an Agent's Message in connection with a book-entry
delivery of Shares, and any other required documents must be received by the
Depositary at one of its addresses set forth on the back cover of this Offer to
Purchase prior to the Expiration Date and (i) the Share Certificates evidencing
tendered Shares must be received by the Depositary along with the Letter of
Transmittal, (ii) Shares must be tendered pursuant to the procedure for
book-entry transfer described below and a Book-Entry Confirmation must be
received by the Depositary, in each case prior to the Expiration Date, or (iii)
the tendering shareholder must comply with the guaranteed delivery procedures
described below.
THE METHOD OF DELIVERY OF SHARE CERTIFICATES, THE LETTER OF TRANSMITTAL AND
ALL OTHER REQUIRED DOCUMENTS, INCLUDING DELIVERY THROUGH THE BOOK-ENTRY TRANSFER
FACILITY, IS AT THE OPTION AND RISK OF THE TENDERING SHAREHOLDER, AND THE
DELIVERY WILL BE DEEMED MADE ONLY WHEN ACTUALLY RECEIVED BY THE DEPOSITARY.
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<PAGE> 9
IF DELIVERY IS BY MAIL, REGISTERED MAIL WITH RETURN RECEIPT REQUESTED, PROPERLY
INSURED, IS RECOMMENDED. IN ALL CASES, SUFFICIENT TIME SHOULD BE ALLOWED TO
ENSURE TIMELY DELIVERY.
Book-Entry Transfer. The Depositary will establish an account with respect
to the Shares at the Book-Entry Transfer Facility for purposes of the Offer
within two business days after the date of this Offer to Purchase, and any
financial institution that is a participant in the Book-Entry Transfer
Facility's system may make book-entry delivery of Shares by causing the
Book-Entry Transfer Facility to transfer such Shares into the Depositary's
account at the Book-Entry Transfer Facility in accordance with the Book-Entry
Transfer Facility's procedures for transfer. Although delivery of Shares may be
effected through book-entry transfer at the Book-Entry Transfer Facility, the
Letter of Transmittal or a facsimile thereof, with any required signature
guarantees, or an Agent's Message in connection with a book-entry delivery of
Shares, and any other required documents, must, in any case, be transmitted to
and received by the Depositary at one of its addresses set forth on the back
cover of this Offer to Purchase prior to the Expiration Date or the guaranteed
delivery procedures described below must be complied with.
REQUIRED DOCUMENTS MUST BE TRANSMITTED TO AND RECEIVED BY THE DEPOSITARY AT
ONE OF ITS ADDRESSES SET FORTH ON THE BACK COVER PAGE OF THIS OFFER TO PURCHASE.
DELIVERY OF DOCUMENTS TO THE BOOK-ENTRY TRANSFER FACILITY IN ACCORDANCE WITH THE
BOOK-ENTRY TRANSFER FACILITY'S PROCEDURES DOES NOT CONSTITUTE DELIVERY TO THE
DEPOSITARY.
Signature Guarantees. Signatures on all Letters of Transmittal must be
guaranteed by a firm that is a bank, broker, dealer, credit union, savings
association or other entity which is a member in good standing of the Security
Transfer Agents Medallion Program (each of the foregoing being referred to as an
"Eligible Institution"), unless the Shares tendered thereby are tendered (i) by
a registered holder of Shares who has not completed either the box entitled
"Special Delivery Instructions" or the box entitled "Special Payment
Instructions" on the Letter of Transmittal or (ii) for the account of an
Eligible Institution. See Instruction 1 of the Letter of Transmittal.
If a Share Certificate is registered in the name of a person other than the
signer of the Letter of Transmittal or if payment is to be made, or a Share
Certificate not accepted for payment or not tendered is to be returned, to a
person other than the registered holder(s), then the Share Certificate must be
endorsed or accompanied by appropriate stock powers, in either case signed
exactly as the name(s) of the registered holder(s) appear on the Share
Certificate, with the signature(s) on such Share Certificate or stock powers
guaranteed by an Eligible Institution. See Instructions 1 and 5 of the Letter of
Transmittal.
If the Share Certificates are forwarded separately to the Depositary, a
properly completed and duly executed Letter of Transmittal (or facsimile
thereof) must accompany each such delivery.
Guaranteed Delivery. If a shareholder desires to tender Shares pursuant to
the Offer and such shareholder's Share Certificates are not immediately
available or time will not permit all required documents to reach the Depositary
prior to the Expiration Date or the procedure for book-entry transfer cannot be
completed on a timely basis, such Shares may nevertheless be tendered if all the
following conditions are satisfied:
(i) the tender is made by or through an Eligible Institution;
(ii) a properly completed and duly executed Notice of Guaranteed
Delivery, substantially in the form provided by the Purchaser herewith, is
received by the Depositary as provided below prior to the Expiration Date;
and
(iii) the Share Certificates (or a Book-Entry Confirmation)
representing all tendered Shares, in proper form for transfer together with
a properly completed and duly executed Letter of Transmittal (or facsimile
thereof), with any required signature guarantees (or, in the case of a
book-entry transfer, an Agent's Message) and any other documents required
by the Letter of Transmittal are received by the Depositary within three
New York Stock Exchange, Inc. ("NYSE") trading days after the date of
execution of such Notice of Guaranteed Delivery.
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<PAGE> 10
Any Notice of Guaranteed Delivery may be delivered by hand or transmitted
by telegram, facsimile transmission or mail to the Depositary and must include a
guarantee by an Eligible Institution in the form set forth in the Notice of
Guaranteed Delivery.
Notwithstanding any other provisions hereof, payment for Shares accepted
for payment pursuant to the Offer will in all cases be made only after timely
receipt by the Depositary of Share Certificates for, or of Book-Entry
confirmation with respect to, such Shares, a properly completed and duly
executed Letter of Transmittal (or facsimile thereof), together with any
required signature guarantees (or, in the case of a book-entry transfer, an
Agent's Message) and any other documents required by the Letter of Transmittal.
Accordingly, payment might not be made to all tendering shareholders at the same
time and will depend upon when Share Certificates are received by the Depositary
or Book-Entry Confirmations with respect to such Shares are received into the
Depositary's account at the Book-Entry Transfer Facility.
Backup U.S. Federal Withholding Tax. To prevent backup U.S. federal income
tax withholding with respect to payment to certain shareholders of the purchase
price of Shares purchased pursuant to the Offer, each such shareholder must
provide the Depositary with such shareholder's correct taxpayer identification
number and certify that such shareholder is not subject to backup U.S. federal
income tax withholding by completing the Substitute Form W-9 included in the
Letter of Transmittal. If backup withholding applies with respect to a
shareholder, the Depositary is required to withhold 31% of any payments made to
such shareholder. See Instruction 10 of the Letter of Transmittal.
Appointment as Proxy. By executing a Letter of Transmittal as set forth
above, a tendering shareholder irrevocably appoints designees of the Purchaser
as such shareholder's attorneys-in-fact and proxies, in the manner set forth in
the Letter of Transmittal, each with full power of substitution, to the full
extent of such shareholder's rights with respect to the Shares tendered by such
shareholder and accepted for payment by the Purchaser (and any and all non-cash
dividends, distributions, rights or other securities issued or issuable in
respect of such Shares on or after the date of this Offer to Purchase). All such
proxies shall be considered coupled with an interest in the tendered Shares.
This appointment will be effective if, when and only to the extent that the
Purchaser accepts such Shares for payment pursuant to the Offer. Upon such
acceptance for payment, all prior proxies given by such shareholder with respect
to such Shares and other securities will, without further action, be revoked,
and no subsequent proxies may be given. The designees of the Purchaser will,
with respect to the Shares and other securities for which the appointment is
effective, be empowered to exercise all voting and other rights of such
shareholder as they in their sole discretion may deem proper at any annual,
special, adjourned or postponed meeting of the Company's shareholders, and the
Purchaser reserves the right to require that, in order for Shares or other
securities to be deemed validly tendered, immediately upon the Purchaser's
acceptance for payment of such Shares, the Purchaser must be able to exercise
full voting rights with respect to such Shares.
Determination of Validity. All questions as to the validity, form,
eligibility (including time of receipt) and acceptance for payment of any
tendered Shares pursuant to any of the procedures described above will be
determined by the Purchaser, in its sole discretion, whose determination will be
final and binding on all parties. The Purchaser reserves the absolute right to
reject any or all tenders of Shares determined by it not to be in proper form or
if the acceptance for payment of, or payment for, such Shares may, in the
opinion of the Purchaser's counsel, be unlawful. The Purchaser also reserves the
absolute right, in its sole discretion, to waive any defect or irregularity in
any tender with respect to Shares of any particular shareholder, whether or not
similar defects or irregularities are waived in the case of other shareholders.
No tender of Shares will be deemed to have been validly made until all defects
and irregularities have been cured or waived.
The Purchaser's interpretation of the terms and conditions of the Offer
(including the Letter of Transmittal and the instructions thereto) will be final
and binding. None of the Purchaser, the Dealer Manager, the Depositary, the
Information Agent or any other person will be under any duty to give
notification of any defects or irregularities in tenders or will incur any
liability for failure to give any such notification.
Other Requirements. The Purchaser's acceptance for payment of Shares
tendered pursuant to the Offer will constitute a binding agreement between the
tendering shareholder and the Purchaser upon the terms and subject to the
conditions of the Offer.
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<PAGE> 11
4. WITHDRAWAL RIGHTS. Except as otherwise provided in this Section 4,
tenders of Shares made pursuant to the Offer are irrevocable. Shares tendered
pursuant to the Offer may be withdrawn at any time prior to the Expiration Date
and, unless theretofore accepted for payment by the Purchaser pursuant to the
Offer, may also be withdrawn at any time after October 15, 1998.
If, for any reason whatsoever, acceptance for payment of or payment for any
Shares tendered pursuant to the Offer is delayed, or the Purchaser is unable to
accept for payment or pay for Shares tendered pursuant to the Offer, then,
without prejudice to the Purchaser's rights set forth herein, the Depositary
may, nevertheless, on behalf of the Purchaser and subject to Rule 14e-1(c) under
the Exchange Act, retain tendered Shares and such Shares may not be withdrawn
except to the extent that the tendering shareholder is entitled to and duly
exercises withdrawal rights as described in this Section 4. Any such delay will
be by an extension of the Offer to the extent required by law.
For a withdrawal to be effective, a written or facsimile transmission
notice of withdrawal must be timely received by the Depositary at one of its
addresses set forth on the back cover of this Offer to Purchase. Any such notice
of withdrawal must specify the name of the person who tendered the Shares to be
withdrawn, the number of Shares to be withdrawn and (if Share Certificates have
been tendered) the name of the registered holder, if different from that of the
person who tendered such Shares. If Share Certificates evidencing Shares to be
withdrawn have been delivered or otherwise identified to the Depositary, then
prior to the release of such Share Certificates, the serial numbers shown on the
particular certificates evidencing the Shares to be withdrawn must be submitted
to the Depositary, and the signature(s) on the notice of withdrawal must be
guaranteed by an Eligible Institution, unless such Shares have been tendered for
the account of an Eligible Institution. If Shares have been tendered pursuant to
the procedure for book-entry transfer as set forth in Section 3, any notice of
withdrawal must also specify the name and number of the account at the
Book-Entry Transfer Facility to be credited with the withdrawn Shares, in which
case a notice of withdrawal will be effective if delivered to the Depositary by
any method of delivery described in this Section 4. Withdrawals of Shares may
not be rescinded.
All questions as to the form and validity (including, without limitation,
time of receipt) of notices of withdrawal will be determined by the Purchaser,
in its sole discretion, the determination of which will be final and binding.
None of the Purchaser, the Dealer Manager, the Depositary, the Information Agent
or any other person will be under any duty to give notification of any defects
or irregularities in any notice of withdrawal or incur any liability for failure
to give any such notification.
Any Shares properly withdrawn will thereafter be deemed to not have been
validly tendered for purposes of the Offer. However, withdrawn Shares may be
re-tendered at any time prior to the Expiration Date by following one of the
procedures described in Section 3.
5. CERTAIN U.S. FEDERAL INCOME TAX CONSEQUENCES. The summary of U.S.
federal income tax consequences set forth below is for general information only
and is based on the provisions of the Internal Revenue Code of 1986, as amended
(the "Code"), Treasury Department Regulations issued pursuant thereto and
published rulings and court decisions in effect as of the date hereof, all of
which are subject to change, possibly with retroactive effect. The tax
consequences to each shareholder will depend in part upon such shareholder's
particular situation. Special tax consequences not described herein may be
applicable to certain shareholders subject to special tax treatment (including,
but not limited to, financial institutions, insurance companies, tax-exempt
organizations, broker-dealers, persons who are not citizens or residents of the
U.S. and shareholders who acquired their shares through the exercise of an
employee stock option or otherwise as compensation). ALL SHAREHOLDERS SHOULD
CONSULT WITH THEIR OWN TAX ADVISORS AS TO THE PARTICULAR TAX CONSEQUENCES OF THE
OFFER AND THE MERGER, INCLUDING THE APPLICABILITY AND EFFECT OF THE ALTERNATIVE
MINIMUM TAX AND ANY STATE, LOCAL OR FOREIGN INCOME AND OTHER TAX LAWS.
The receipt of cash in exchange for Shares pursuant to the Offer or the
Merger will be a taxable transaction for U.S. federal income tax purposes and
may also be a taxable transaction under applicable state, local, foreign and
other tax laws. The tax consequences of the receipt of cash pursuant to the
Offer may vary depending upon, among other things, the particular circumstances
of the shareholder.
9
<PAGE> 12
In general, for U.S. federal income tax purposes, a shareholder who
receives cash in exchange for Shares in the Offer or receives cash in exchange
for Shares pursuant to the Merger will recognize gain or loss equal to the
difference, if any, between the amount of cash received and the shareholder's
adjusted tax basis of the Shares exchanged therefor. Gain or loss will be
determined separately for each block of Shares (i.e., Shares acquired at the
same cost in a single transaction) exchanged pursuant to the Offer or the
Merger. Such gain or loss will be capital gain or loss if the Shares are capital
assets in the hands of the shareholder at the time of their exchange and will be
long-term capital gain or loss if such Shares have been held by the shareholder
for more than one year. Under recently adopted amendments to the Code, net
capital gain recognized by an individual investor upon a disposition of property
that has been held for more than 12 months will generally be subject to a
maximum tax rate of 20% or, in the case of property that has been held for 12
months or less, will generally be subject to tax at ordinary income tax rates.
6. PRICE RANGE OF SHARES; DIVIDENDS. Since July 17, 1998, the Shares have
traded on the NYSE under the symbol "DPS." Prior to such date, the Shares were
traded through the NASDAQ National Market ("NASDAQ") under the symbol "DPSI."
The following table sets forth, for the quarters indicated, the high and low
intraday sales prices per Share quoted on NASDAQ (for the calendar years 1996
and 1997 and in 1998 through July 16, 1998) and on the NYSE (beginning on July
17, 1998 through August 14, 1998) as reported by the Dow Jones Historical Stock
Quote Reporter Service. The Company has advised the Purchaser that the Company
has never paid cash dividends on the Shares. The Merger Agreement provides that,
without the prior written consent of Parent, the Company will not declare, set
aside or pay any dividend or other distribution payable in cash, stock or
property with respect to the Shares.
<TABLE>
<CAPTION>
MARKET PRICE
-------------
CALENDAR YEAR HIGH LOW
------------- ----- ----
<S> <C> <C>
1996
First Quarter............................................... $11 7/8 $10 3/4
Second Quarter.............................................. $14 1/2 $10 3/4
Third Quarter............................................... $14 $ 9 3/4
Fourth Quarter.............................................. $16 1/4 $11 1/2
1997
First Quarter............................................... $16 1/2 $11 3/16
Second Quarter.............................................. $14 1/2 $ 9 5/8
Third Quarter............................................... $24 1/2 $12 7/8
Fourth Quarter.............................................. $30 1/4 $14 3/4
1998
First Quarter............................................... $18 3/8 $10 1/2
Second Quarter.............................................. $15 $ 9 1/2
Third Quarter (through August 14, 1998)..................... $17 $11 3/4
</TABLE>
On August 10, 1998, the last full trading day prior to the public
announcement of the execution of the Merger Agreement, the last reported sales
price of the Shares on the NYSE was $12 7/8 per Share. On August 14, 1998, the
last full trading day prior to the date of this Offer to Purchase, the last
reported sales price of the Shares on the NYSE was $16 9/16 per Share. On June
12, 1998, the last full trading day prior to initial filing of a Schedule 13D by
Parent with respect to its investment in the Company as described below under
Section 10-"Background of the Offer; Contacts with the Company; the Merger
Agreement and the Confidentiality Agreement," the last reported sales price of
the Shares on the NASDAQ was $9 7/8 per Share. SHAREHOLDERS ARE URGED TO OBTAIN
A CURRENT MARKET QUOTATION FOR THE SHARES.
7. CERTAIN INFORMATION CONCERNING THE COMPANY. The information concerning
the Company contained in this Offer to Purchase, including financial
information, has been furnished by the Company or been taken from and based upon
publicly available documents and records on file with the Commission and other
public sources. None of the Purchaser, Parent, the Dealer Manager, the
Depositary, or the Information Agent assumes any responsibility for the accuracy
or completeness of the information concerning the Company
10
<PAGE> 13
contained in such documents and records or for any failure by the Company to
disclose events which may have occurred or may affect the significance or
accuracy of any such information but which are unknown to the Purchaser, Parent,
the Dealer Manager, the Depositary or the Information Agent.
The Company is a Texas corporation and its principal executive offices are
located at 112 E. Pecan Street, Suite 1000, San Antonio, Texas 78205.
The Company is a provider of a broad range of workover, liquid and
production services used in the production of oil and gas. The Company's
services are utilized by major oil and gas companies as well as independent
producers to optimize performance of oil and gas wells. The Company is the third
largest provider of workover rig and production services in the United States.
Set forth below is selected financial information with respect to the
Company. Financial information for fiscal years 1998, 1997 and 1996 has been
excerpted or derived from the Company's Annual Report on Form 10-K for the
fiscal year ended March 31, 1998 (the "Company 10-K"). Financial information for
the Company for the three months ended June 30, 1998 has been taken from a press
release issued by the Company on August 3, 1998. Financial information for the
Company for the three months ended June 30, 1997 has been taken from the
Company's Quarterly Report on Form 10-Q for the fiscal quarter ended June 30,
1997 (the "June 30, 1997 10-Q"). Parent and the Purchaser make no representation
as to the accuracy of such financial information. More comprehensive financial
information is included in the Company 10-K and other documents filed by the
Company with the Commission, and the following summary is qualified in its
entirety by reference to the Company 10-K, the June 30, 1997 10-Q and such other
documents, including the financial information and related notes contained
therein. The Company 10-K, the June 30, 1997 10-Q and such other documents may
be inspected and copies may be obtained from the offices of the Commission or
the NYSE in the manner set forth below.
DAWSON PRODUCTION SERVICES, INC.
SELECTED CONSOLIDATED FINANCIAL DATA
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
THREE MONTHS ENDED
JUNE 30,
YEAR ENDED MARCH 31, (UNAUDITED)
---------------------------- ------------------
OPERATING INFORMATION: 1998 1997 1996 1998 1997*
---------------------- -------- ------- ------- ------- --------
<S> <C> <C> <C> <C> <C>
Revenues...................................... $226,162 $92,628 $52,391 $51,798 $54,732
Operating Income.............................. 24,003 10,036 4,570 4,266 5,869
Net income (loss)............................. 7,678 5,077 859 1,087 1,876
Net income per Share.......................... 0.69 0.72 0.31 0.10 0.17
Net income per Share fully diluted............ 0.68 0.71 0.31 0.10 0.17
</TABLE>
<TABLE>
<CAPTION>
AT MARCH 31,
-----------------------------
BALANCE SHEET INFORMATION: 1998 1997 1996
-------------------------- -------- -------- -------
<S> <C> <C> <C>
Cash and cash equivalents................................... $ 24,964 $ 42,330 $13,863
Net property and equipment.................................. 164,846 145,641 29,115
Total assets................................................ 290,353 273,736 56,368
Long-term debt and other obligations, net of current
portion................................................... 147,203 143,306 3,694
Total shareholders' equity.................................. 113,499 106,219 45,695
</TABLE>
- ---------------
* Unaudited financial information taken from the Company's press release dated
August 3, 1998.
Pending Acquisitions. On August 14, 1998, the Company entered into an
Asset Purchase Agreement by and between the Company, Dawson Production Partners,
L.P., a Delaware limited partnership of which the Company indirectly holds all
the partnership interests, Hellums Services II, Inc., Superior Completion
Services, Inc., South Texas Disposal, Inc. and Elsik II, Inc. (collectively,
"Hellums"), pursuant to which the
11
<PAGE> 14
Company has agreed to acquire assets relating to the liquid services business of
Hellums in South Texas. The purchase price of the assets is $48 million in cash.
The agreement contains customary representations, warranties, covenants and
conditions to closing.
On June 25, 1998, the Company entered into a letter of intent with T&J
Corp. ("T&J"), which is engaged in the liquid services business, which
contemplates the acquisition of T&J in a merger transaction. The merger
consideration will be approximately $6.4 million, subject to adjustment.
On August 14, 1998, the Company entered into a letter of intent with D&W
Services, Inc. ("D&W"), which is engaged in the liquid services business, which
contemplates the acquisition of all the outstanding shares of common stock of
D&W for $3.6 million.
Certain Company Projections. To the knowledge of Parent and the Purchaser,
the Company does not, as a matter of course, make public forecasts as to its
future financial performance. However, in connection with the discussions
concerning the Offer and the Merger, the Company furnished Parent with certain
pro forma and projected financial information relating to the Company. Such
information assumed the completion of certain pending or possible acquisitions.
Assuming the completion of the Company's pending acquisitions of Hellums,
T&J and D&W, such information indicated revenues of $260.9 million and $253.9
million, EBITDA of $58.2 million and $62.4 million, and net income of $11.6
million and $11.1 million, in each case for the fiscal years 1998 and 1999,
respectively.
Assuming the completion of the pending acquisitions of Hellums and T&J, but
excluding the pending acquisition of D&W, such information indicated: (i)
revenues of $249.5 million and $273.2 million, increasing to $343.6 million;
(ii) EBITDA of $61.1 million and $68.5 million, increasing to $90.1 million, and
(iii) net income of $10.6 million and $14.9 million, increasing to $30.6 million
in each case for the fiscal years 1999, 2000 and 2007.
THE PROJECTIONS WERE NOT PREPARED WITH A VIEW TO PUBLIC DISCLOSURE OR
COMPLIANCE WITH PUBLISHED GUIDELINES OF THE COMMISSION OR THE GUIDELINES
ESTABLISHED BY THE AMERICAN INSTITUTE OF CERTIFIED PUBLIC ACCOUNTANTS REGARDING
PROJECTIONS OR FORECASTS. FORWARD-LOOKING STATEMENTS, SUCH AS THE COMPANY'S
PROJECTIONS OF REVENUES, EARNINGS AND CASH FLOW AND PARENT'S PLANS AND
STRATEGIES AND ITS ANTICIPATION OF COST SAVINGS AND EFFICIENCIES RESULTING FROM
THE MERGER, AND OTHER STATEMENTS CONTAINED HEREIN REGARDING MATTERS THAT ARE NOT
HISTORICAL FACTS, ARE ONLY PREDICTIONS AND ESTIMATES REGARDING FUTURE EVENTS AND
CIRCUMSTANCES. SUCH FORWARD-LOOKING STATEMENTS ARE SUBJECT TO CERTAIN RISKS AND
UNCERTAINTIES, INCLUDING AMONG OTHER FACTORS, THAT UTILIZATION OF ASSETS CAN BE
IMPAIRED BY ADVERSE WEATHER CONDITIONS AND CUSTOMER DEMAND; THAT COST SAVINGS
EFFORTS CAN BE NEGATED BY INCREASES IN LABOR RATES AND PRODUCTION COSTS;
DIFFICULTY IN INTEGRATING ADMINISTRATIVE SYSTEMS AND OPERATIONS; THAT MARGINS
ARE SUBJECT TO UNPREDICTABLE FLUCTUATIONS IN OIL AND GAS COMMODITY PRICES; AND
THAT CONTINUED GROWTH IS DEPENDANT UPON PURCHASING DECISIONS BY PRESENT AND
POTENTIAL CUSTOMERS, AS WELL AS INCREASED COMPETITION FROM NEW AND EXISTING
COMPETITORS. THE COMPANY HAS ADVISED THE PURCHASER AND PARENT THAT ITS FINANCIAL
FORECASTS ARE, IN GENERAL, PREPARED SOLELY FOR INTERNAL USE AND CAPITAL
BUDGETING AND OTHER MANAGEMENT DECISIONS, AND ARE SUBJECTIVE IN MANY RESPECTS
AND THUS SUSCEPTIBLE TO INTERPRETATIONS AND PERIODIC REVISION BASED ON ACTUAL
EXPERIENCE AND BUSINESS DEVELOPMENTS. THE PROJECTIONS ALSO REFLECT NUMEROUS
ASSUMPTIONS, WITH RESPECT TO INDUSTRY PERFORMANCE, GENERAL BUSINESS, ECONOMIC,
MARKET AND FINANCIAL CONDITIONS AND OTHER MATTERS, INCLUDING EFFECTIVE TAX RATES
CONSISTENT WITH HISTORICAL LEVELS FOR THE COMPANY, ALL OF WHICH ARE DIFFICULT TO
PREDICT, MANY OF WHICH ARE BEYOND THE COMPANY'S CONTROL AND NONE OF WHICH WERE
SUBJECT TO APPROVAL BY PARENT OR THE PURCHASER. ACCORDINGLY, THERE CAN BE NO
ASSURANCE THAT THE ASSUMPTIONS MADE IN PREPARING THE PROJECTIONS WILL PROVE
ACCURATE, AND ACTUAL RESULTS MAY BE MATERIALLY GREATER OR LESS THAN THOSE
CONTAINED IN THE PROJECTIONS. THE INCLUSION OF THE PROJECTIONS HEREIN SHOULD NOT
BE REGARDED AS AN INDICATION THAT ANY OF PARENT, THE PURCHASER, THE COMPANY OR
THEIR RESPECTIVE AFFILIATES OR REPRESENTATIVES CONSIDERED OR CONSIDER THE
PROJECTIONS TO BE A RELIABLE PREDICTION OF FUTURE EVENTS, AND THE PROJECTIONS
SHOULD NOT BE RELIED UPON AS SUCH. NONE OF PARENT, THE PURCHASER, THE COMPANY OR
ANY OF THEIR RESPECTIVE AFFILIATES OR REPRESENTATIVES HAS MADE, OR MAKES ANY
REPRESENTATION TO ANY PERSON REGARDING THE INFORMATION CONTAINED IN THE
PROJECTIONS AND NONE OF THEM INTENDS TO UPDATE OR OTHERWISE REVISE THE
PROJECTIONS TO REFLECT CIRCUMSTANCES EXISTING AFTER THE DATE WHEN
12
<PAGE> 15
MADE OR TO REFLECT THE OCCURRENCE OF FUTURE EVENTS EVEN IN THE EVENT THAT ANY OR
ALL OF THE ASSUMPTIONS UNDERLYING THE PROJECTIONS ARE SHOWN TO BE IN ERROR.
The Company is subject to the information and reporting requirements of the
Exchange Act and is required to file reports and other information with the
Commission relating to its business, financial condition and other matters.
Information, as of particular dates, concerning the Company's directors and
officers, their remuneration, stock options granted to them, the principal
holders of the Company's securities, any material interests of such persons in
transactions with the Company and other matters is required to be disclosed in
proxy statements distributed to the Company's shareholders and filed with the
Commission. These reports, proxy statements and other information should be
available for inspection at the public reference facilities of the Commission
located in Judiciary Plaza, 450 Fifth Street, N.W., Washington, D.C. 20549 or
its site on the World Wide Web: http://www.sec.gov., and also should be
available for inspection and copying at prescribed rates at the following
regional offices of the Commission: Seven World Trade Center, New York, New York
10048; and Citicorp Center, 500 West Madison Street, Suite 1400, Chicago,
Illinois 60661. Copies of this material may also be obtained by mail, upon
payment of the Commission's customary fees, from the Commission's principal
office at 450 Fifth Street, N.W., Washington, D.C. 20549. Reports, proxy
statements and other information concerning the Company should also be available
for inspection at the offices of the NYSE, 20 Broad Street, New York, New York
10005.
8. CERTAIN INFORMATION CONCERNING THE PURCHASER AND PARENT.
The Purchaser. The Purchaser is a newly incorporated New Jersey
corporation and a wholly owned subsidiary of Parent organized in connection with
the Offer and the Merger and has not carried on any activities other than in
connection with the Offer and the Merger. The principal executive offices of
Purchaser are located at Two Tower Center, 20th Floor, East Brunswick, New
Jersey 08816.
Parent. Parent and its subsidiaries are the leading provider of oil and
gas well services and related operations in the United States and the second
leading provider in Argentina. Parent operates in most of the major onshore
production basins in the contiguous United States and in Argentina, generally
providing a full range of maintenance and workover services to major and
independent oil and gas companies in all of its operating regions. In addition
to maintenance and workover services, Parent also provides services which
include the completion of newly drilled wells, the recompletion of existing
wells (including horizontal recompletion) and the plugging and abandonment of
wells at the end of their useful lives. Other services include oil field fluid
transportation, storage and disposal services, frac tank rentals, fishing and
rental tools, wireline services, air drilling and hot oiling. In addition,
Parent is engaged in contract drilling in many of the major onshore production
basins in the contiguous United States and in Argentina, and owns and produces
oil and natural gas in the Permian Basin and Panhandle region of Texas.
Set forth below is a summary of certain consolidated financial information
with respect to Parent, excerpted or derived from the audited financial
information of Parent contained in Parent's Annual Reports on Form 10-K for the
fiscal years ended June 30, 1996 and 1997 and Parent's Quarterly Report on Form
10-Q for the fiscal quarter ended March 31, 1998. More comprehensive financial
information is included in such reports and other documents filed with the
Commission, and the following summary is qualified in its entirety by reference
to such reports and other documents, including the financial information and
related notes contained therein. Such reports and other documents may be
inspected and copies may be obtained from the offices of the Commission or the
NYSE in the manner set forth above.
13
<PAGE> 16
KEY ENERGY GROUP, INC.
SELECTED CONSOLIDATED FINANCIAL DATA
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
NINE MONTHS ENDED
MARCH 31,
YEAR ENDED JUNE 30, (UNAUDITED)
---------------------------- -------------------
OPERATING INFORMATION: 1997 1996 1995 1998 1997
---------------------- -------- ------- ------- -------- --------
<S> <C> <C> <C> <C> <C>
Revenues.................................... $163,630 $66,487 $44,689 $305,718 $110,709
Operating Income............................ 22,137 8,052 4,806 43,287 13,488
Net income (loss)........................... 9,098 3,586 2,178 19,365 5,952
Net income (per common share)............... 0.75 0.45 0.33 1.15 0.54
Net income (fully diluted).................. 0.65 0.44 0.33 0.97 0.46
</TABLE>
<TABLE>
<CAPTION>
AT JUNE 30,
------------------------------ AT MARCH 31, 1998
BALANCE SHEET INFORMATION: 1997 1996 1995 (UNAUDITED)
-------------------------- -------- -------- -------- -----------------
<S> <C> <C> <C> <C>
Cash and cash equivalents....................... $ 41,704 $ 42,211 $ 1,275 $ 26,874
Property and equipment, net..................... 208,186 87,207 45,243 448,433
Total assets.................................... 320,095 121,722 13,700 638,333
Long-term debt, net of current portion.......... 172,763 45,354 20,111 356,043
Shareholders' equity............................ 73,179 41,624 31,942 146,962
</TABLE>
Parent is subject to the information and reporting requirements of the
Exchange Act and is required to file reports and other information with the
Commission relating to its business, financial condition and other matters.
Information, as of particular dates, concerning Parent's directors and officers,
their remuneration, stock options granted to them, the principal holders of
Parent's securities, any material interests of such persons in transactions with
Parent and other matters is required to be disclosed in proxy statements
distributed to Parent's shareholders and filed with the Commission. These
reports, proxy statements and other information should be available for
inspection and copies may be obtained in the same manner as set forth for the
Company in Section 7.
The name, citizenship, business address, principal occupation or employment
and five-year employment history for each of the directors and executive
officers of the Purchaser and Parent are set forth in Schedule I hereto.
Schedule II hereto sets forth transactions in the Shares effected during
the past 60 days by Parent, the Purchaser and their affiliates. Except as set
forth in this Offer to Purchase and Schedule I hereto, none of Parent, the
Purchaser or, to the best knowledge of Parent or the Purchaser, any of the
persons listed in Schedule I hereto or any associate or majority owned
subsidiary of such persons beneficially owns any equity security of the Company,
and none of Parent or the Purchaser or, to the best knowledge of Parent or the
Purchaser, any of the other persons referred to above, or any of the respective
directors, executive officers or subsidiaries of any of the foregoing has
effected any transaction in any equity security of the Company during the past
60 days.
Except as set forth in this Offer to Purchase, none of Parent or the
Purchaser or, to the best knowledge of Parent or the Purchaser, any of the
persons listed in Schedule I hereto has any contract, arrangement, understanding
or relationship with any other person with respect to any securities of the
Company, including, without limitation, any contract, arrangement, understanding
or relationship concerning the transfer or the voting of any securities of the
Company, joint ventures, loan or option arrangements, puts or calls, guarantees
of loans, guarantees against loss or the giving or withholding of proxies.
Except as set forth in this Offer to Purchase, none of Parent or the Purchaser
or, to the best knowledge of Parent or the Purchaser, any of the persons listed
in Schedule I hereto has had any transactions with the Company or any of its
executive officers, directors or affiliates that would require reporting under
the rules of the Commission.
14
<PAGE> 17
Except as set forth in this Offer to Purchase, there have been no contacts,
negotiations or transactions between Parent or the Purchaser, or their
respective subsidiaries, or, to the best knowledge of Parent or the Purchaser,
any of the persons listed in Schedule I hereto, on the one hand, and the Company
or its executive officers, directors or affiliates, on the other hand,
concerning a merger, consolidation or acquisition, tender offer or other
acquisition of securities, election of directors or a sale or other transfer of
a material amount of assets. See Section 10-"Background of the Offer; Contacts
with the Company; the Merger Agreement and the Confidentiality Agreement."
9. SOURCE AND AMOUNT OF FUNDS.
The Purchaser estimates that the total amount of funds required to acquire
all Shares outstanding on a fully diluted basis will be approximately $187.8
million, that the total amount of funds necessary to refinance certain existing
debt of Parent and the Company (excluding the Senior Notes) in connection with
the Offer and the Merger will be approximately $203.2 million and that the total
amount of funds required to pay all fees and expenses related thereto will be
approximately $23.0 million. According to the Company 10-K, (i) as of March 31,
1998, the aggregate principal amount of the Company's outstanding Senior Notes
was $140,000,000 and (ii) upon a change of control of the Company, holders of
the Senior Notes will have the right to require the Company to repurchase the
Senior Notes at a price equal to 101% of the aggregate principal amount thereof,
together with accrued and unpaid interest to the date of repurchase. Based on
such information, and assuming that all holders of the Senior Notes have and
exercise such rights, the Purchaser estimates that the total amount of funds
necessary to repurchase the Senior Notes (exclusive of accrued and unpaid
interest thereon) will be approximately $141.4 million.
Credit Facility. Parent has been provided with a commitment (the
"Financing Commitment") by PNC, dated as of August 14, 1998, pursuant to which
PNC has agreed, upon the terms and subject to the conditions set forth in the
Financing Commitment, to provide Parent with up to $550,000,000 in senior
secured credit facilities (the "Credit Facility"). Under the terms of the
Financing Commitment, it is anticipated that PNC Bank will underwrite the Credit
Facility and/or syndicate the Credit Facility with a group of commercial banks
and other financial institutions. The proceeds of the Credit Facility would be
used to (i) consummate the Offer and the Merger; (ii) refinance certain existing
indebtedness of Parent and the Company; (iii) provide working capital for Parent
and its subsidiaries, including the Company and its subsidiaries after the
Merger; and (iv) pay fees and expenses in connection with the Offer and the
Merger.
PNC's obligations under the Financing Commitment are subject to, among
others, the following conditions: (i) the execution and delivery of a
satisfactory definitive credit agreement; (ii) the per Share acquisition price
of the Company not being greater than $17.50 per Share and the total acquisition
price for all Shares not exceeding approximately $202,000,000; (iii) there
having been validly tendered to the Purchaser sufficient Shares to enable Parent
to effect the Merger without the affirmative vote of any other holder of Shares;
(iv) the inapplicability of the Texas anti-takeover statutes; (v) the Rights not
becoming exercisable; (vi) the absence of material adverse change with respect
to the business, assets, financial condition, operations or prospects of Parent
or the Company; (vii) all conditions to the Offer having been satisfied or
waived; (viii) Parent's receipt of certain financing or financing commitments
necessary to redeem the Senior Notes on terms acceptable to PNC; and (ix) pro
forma consolidated EBITDA for the Company and Parent for the fiscal period ended
June 30, 1998 is not less than $170,000,000 in the aggregate.
The Credit Facility will consist of three facilities, a revolving credit
facility (the "Revolver") and two term loan facilities (the "Term Loans"). The
Credit Facility contemplates that funds would be available under the Revolver at
the time the Offer is consummated, and that the Term Loans would be made at the
time of the Merger in order to repay certain amounts previously borrowed under
the Revolver. An aggregate amount of up to $550,000,000 will be available under
the Revolver, which amount will be automatically reduced by up to $300,000,000
on the date the Merger is consummated. The Revolver will mature 150 days after
the purchase of Shares by the Purchaser pursuant to the Offer (the "Acquisition
Date"), unless prior to the Acquisition Date the Merger is consummated, in which
case the Revolver will mature on the fifth anniversary of the Acquisition Date.
The Revolver also provides for a commitment fee on the unused amount thereof at
a rate which will vary between .25% and .50% depending on Parent's consolidated
leverage ratio. The two Term Loans, in an aggregate
15
<PAGE> 18
amount of up to $300,000,000 will consist of a five-year term loan facility in
an aggregate amount of up to $150,000,000 and a six-year term loan facility in
an aggregate amount of up to $150,000,000. The five-year Term Loan will be
repayable in quarterly amounts as a percentage of the total five-year Term Loan
as follows: year 1-0%, year 2-4%, year 3-6%, year 4-7% and year 5-8%. The
six-year Term Loan will be repayable in quarterly amounts as a percentage of the
total six-year Term Loan as follows: years 1 through 5-0.25% and year 6-23.75%.
Loans under the Revolver and the Term Loans will bear interest at a rate per
annum based upon, at the option of Parent, either (i) the higher of PNC's prime
rate or the Federal Funds Rate plus 1/2% or (ii) LIBOR, in each case plus the
applicable margin. The applicable margin will be determined based on Parent's
consolidated leverage ratio and will range from zero to 250 basis points in the
case of the Revolver and the five-year Term Loan, and from 100 to 300 basis
points in the case of the six-year Term Loan. The Financing Commitment provides
that (a) the Credit Facility will be guaranteed by Parent's domestic
subsidiaries and (b) as collateral PNC will have a first priority perfected lien
on substantially all of the tangible and intangible assets of Parent and its
domestic subsidiaries. To the extent required by the terms of any outstanding
Senior Notes, such collateral will also secure such Senior Notes on a pari passu
basis. The Credit Facility will contain certain financial covenants as well as
certain restrictions on, among other things, (i) additional indebtedness of
Parent; (ii) liens; (iii) guarantee obligations; (iv) asset sales and other
dispositions of property; (v) dividends; (vi) capital expenditures; and (vii)
loans and advances to officers and employees.
The foregoing summary of the Financing Commitment does not purport to be
complete and is qualified by reference to such document, a copy of which has
been filed as an exhibit to the Schedule 14D-1.
In connection with the Financing Commitment, Parent has agreed, after the
Merger, to pay PNC certain fees, to reimburse PNC for reasonable out-of-pocket
expenses and to provide certain indemnities, as is customary for commitments
such as the Financing Commitment.
Proposed Bridge Arrangement. Parent is engaged in discussions with Lehman
with the goal of obtaining a definitive commitment for the financing
contemplated by the Proposed Bridge Arrangement with Lehman. Under the terms of
the Merger Agreement, Parent and the Purchaser have agreed to use best efforts
to obtain funding on terms substantially similar to those contained in either of
the Proposed Bridge Arrangements and to maintain the ability to accept proposed
bridge arrangements on terms substantially similar to those contained in either
of the Proposed Bridge Arrangements.
It is anticipated that the indebtedness incurred by Parent under the Credit
Facility and, if consummated, the financing contemplated by the Proposed Bridge
Arrangement with Lehman, will be repaid from funds generated internally by
Parent and its subsidiaries, through additional borrowings or other financings,
or through a combination of such sources. No final decisions have been made
concerning the method Parent will employ to repay such indebtedness. Such
decisions will be based on Parent's review from time to time of the advisability
of certain actions, as well as on prevailing interest rates and financial and
other economic and market conditions.
10. BACKGROUND OF THE OFFER; CONTACTS WITH THE COMPANY; THE MERGER AGREEMENT AND
THE CONFIDENTIALITY AGREEMENT.
Parent continuously evaluates and considers other businesses of varying
sizes as potential strategic partners and candidates for acquisition and has
engaged in discussions with certain businesses in pursuit of possible
transactions. Parent has evaluated and considered a number of potential
transactions and transaction prospects.
In this connection, since 1993, representatives of the Company and
representatives of Parent have periodically engaged in discussions concerning a
possible business combination between the Company and Parent.
In January 1998, W. Philip Marcum, a director of Parent and Stephen E.
McGregor, the Executive Vice President and Chief Financial Officer of Parent met
with Michael E. Little, Chairman, President and Chief Executive Officer of the
Company in San Antonio, Texas, to discuss possible ways in which Parent and the
Company could take advantage of the complementary strengths of their respective
businesses, including a
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merger of the Company and Parent. In late January 1998, Francis D. John,
Chairman, President and Chief Executive Officer of Parent and Mr. McGregor met
with Mr. Little in Houston to further discuss the possibility of a merger
between the two companies. At this meeting, Mr. John explained why he believed
that a combination of Parent and the Company would result in significant
benefits for both companies.
On February 24, 1998, Mr. Little sent a letter to Mr. John advising him
that the Company Board had decided not to pursue a possible business combination
with Parent. Mr. John responded by letter dated March 10, 1998, in which he
expressed disappointment with the decision of the Company Board.
From mid-April to mid-May, 1998, Parent held meetings with its financial
advisors to further consider a possible business combination with, or
acquisition of, the Company. The result of these meetings was Parent's decision
to continue to consider the acquisition of the Company.
From May 11, 1998 through June 5, 1998, Parent engaged in a series of open
market transactions pursuant to which it purchased an aggregate of 820,500
Shares, representing 7.3% of the Shares outstanding based on publicly available
information. Parent publicly disclosed its ownership of Shares in a Schedule 13D
filed with the Commission on June 15, 1998.
On June 29, 1998, Parent delivered the following letter (the "June 29th
Letter") to Mr. Little and the other members of the Company Board:
June 29, 1998
The Board of Directors
of Dawson Production Services, Inc.
112 E. Pecan Street
Suite 1000
San Antonio, Texas 78205
Mr. Michael E. Little and other Board Members:
Mike, over the past three years you and I with our respective Board members
have discussed the significant value that would be created by a combination of
Key Energy Group, Inc. ("Key") and Dawson Production Services, Inc. ("Dawson").
Since May of last year we have made three specific proposals to Dawson that we
believe would have benefitted both companies' shareholders. Subsequent to our
most recent discussions, in January and February of this year, Key has continued
to analyze the possible benefits of such a combination. This analysis reconfirms
our belief that the companies would be a superb fit. Key/Dawson would be the
largest well servicing company in the world, positively staged for future
growth, with leading positions in nearly all major domestic producing regions
and with great expansion prospects throughout the world. The combination would
provide substantial benefits to shareholders, employees and customers of both
companies.
Key and Dawson have each shown significant operating improvements as we
have successfully consolidated the well servicing industry. We believe more than
ever that a Key/Dawson combination creates real shareholder value; therefore,
Key is pleased to submit to you its proposal to acquire, at a cash price of
$16.00 per share, all issued and outstanding shares of common stock of Dawson.
This price represents a premium of 62% over the closing price of Dawson's shares
on June 12, 1998, the last trading day prior to the date on which Key disclosed
its present investment in Dawson.
While this is an all-cash proposal, we believe that the combined company's
equity would be highly attractive, and accordingly we would be willing to
consider a stock-for-stock transaction or a mixed stock-and-cash transaction.
The combination of Key and Dawson would create a stronger, more competitive
entity. In addition, a Key/Dawson combination would provide significant
operational and financial consolidation benefits and, based on our current
analyses and projections, should be accretive within the first year of combined
operations.
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Based on extensive conversations with a major commercial bank and a leading
investment bank, Key is highly confident that financing would be available to
pay for all transaction-related financing requirements, including Dawson's
shares and for any necessary refinancing of existing debt.
This proposal obviously is subject to the negotiation and execution of
definitive documentation on mutually satisfactory terms; however, we believe
that this could be accomplished quite expeditiously.
Our interest in Dawson is strong, and, as stated above, we have made a
substantial investment in Dawson. As disclosed in our Schedule 13D filed with
the SEC on June 15, 1998, Key now owns 820,500 shares of Dawson common stock,
representing approximately 7.3% of the shares outstanding based on current
publicly available information. Simultaneously with the transmission of this
letter, we have issued a public announcement setting forth the text of this
letter.
We believe that Dawson's shareholders will find our proposal extremely
attractive and trust that you will give careful consideration to it. Our strong
preference is to proceed harmoniously and cooperatively within the framework of
a negotiated transaction. To this end, we would welcome the opportunity to meet
with you to discuss our proposal at the earliest possible date. We look forward
to hearing from you in the near future.
Very truly yours,
/s/ Francis D. John
Francis D. John
In addition, on June 29, 1998, Parent issued a press release publicly
disclosing the June 29th Letter. Following the June 29th Letter, Parent
continued to discuss its alternatives with respect to a possible business
combination with, or acquisition of, the Company with its financial and legal
advisors. On July 7, 1998, the Company issued a press release announcing that it
had retained Morgan Stanley to review Parent's proposal to acquire the Company
set forth in the June 29th Letter.
On July 17, 1998, Paul McCollam, a director of the Company, and Kevin
Collins, a director of Parent, engaged in a brief conversation in which Mr.
McCollam indicated to Mr. Collins that the Company was working diligently with
Morgan Stanley.
On July 20, 1998, Parent sent the following letter to each member of the
Company Board (and issued a press release publicly disclosing the same):
July 20, 1998
The Board of Directors
Dawson Production Services, Inc.
112 E. Pecan Street
Suite 1000
San Antonio, TX 78205
Dear Board Members:
On June 29, 1998 Key Energy Group, Inc. made an all cash proposal to you
for the acquisition of Dawson Production Services, Inc. To date, no one from
your company has contacted us with respect to the proposal even though three
weeks have passed since it was delivered to you. Over the past several weeks,
many of your shareholders have contacted Key expressing concern and frustration
about Dawson's unresponsiveness. It is our understanding that you too have heard
by phone and in writing from many of these Dawson shareholders. Their unanimous
view as expressed to Key is that the combination of our companies makes
tremendous sense and would be beneficial to all relevant parties, including our
respective shareholders, employees and customers.
In our June 29 letter we noted that our $16 per share proposal represented
a premium of more than 60% to Dawson's market value the day prior to the
disclosure of Key's investment in your company. Subsequent to our proposal,
oilfield service stocks have continued to decline as the outlook for oil and
natural gas prices
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remains uncertain. As a result, and based on a review of comparable service
companies, it is reasonable to conclude that Dawson in all likelihood would be
trading in the $8 range today if it were not for Key's attractive proposal.
Accordingly, Key's proposal now represents a premium of approximately 100% to
Dawson's unaffected stock price.
We are certain that Dawson's Management and Directors want to act in the
best interest of the company's shareholders. As I previously mentioned, many of
Dawson's shareholders have expressed their desire to see this transaction
completed expeditiously. Hopefully, we will hear from you in the very near
future with a commitment to proceed forward in good faith. Such constructive
action would mitigate the possibility of our proposal being reduced which would
have a negative impact on your shareholders' value.
As you know, we have been and continue to be prepared to meet immediately
with representatives of Dawson to discuss our proposal. Given the financing
commitment we have in hand from PNC Bank, we believe a definitive agreement
between our companies could be achieved in no more than thirty days from the
date we initially meet and with no material disruption to our companies'
operations. No doubt, a large majority of your shareholders would applaud such
an outcome.
Sincerely,
/s/ Francis D. John
Francis D. John
President, Chairman & CEO
On July 21, 1998, Mr. Little sent the following letter to Mr. John (and the
Company issued a press release disclosing the same):
July 21, 1998
Mr. Francis D. John
Chairman, President and Chief Executive Officer
Key Energy Group, Inc.
Two Tower Center, 20th Floor
East Brunswick, NJ 08816
Dear Fran:
We received this morning your letter dated July 20, 1998. As we said in our
press release dated July 7, 1998, we have engaged Morgan Stanley & Co.
Incorporated, are reviewing the situation with them, and will respond in due
course.
Sincerely,
/s/ Michael E. Little
Michael E. Little
Chairman, President and Chief Executive Officer
cc: Dawson's Board of Directors
On July 30 and 31, 1998 Parent purchased 200 additional Shares in open
market transactions on the NYSE and on July 31, 1998 the Purchaser purchased 100
Shares in an open market transaction on the NYSE. On August 3, 1998, Parent
transferred 15,000 Shares as a capital contribution to the Purchaser. See
Schedule II.
On August 3, 1998, the Company issued a press release (the "August 3rd
Press Release") announcing, among other things, that it had signed a letter of
intent to acquire Hellums.
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Also on August 3, 1998, a representative of Morgan Stanley telephoned a
representative of Parent's financial advisor, Bear Stearns. Morgan Stanley
informed Bear Stearns that the Company Board had met on a number of occasions to
review Parent's $16 offer and had concluded, after receiving advice from Morgan
Stanley, that the Company did not find the $16 offer compelling, but would be
open to discussing a possible combination at a higher price.
On August 4, 1998, the Company held a telephone conference call with
industry analysts and other members of the investment community at which the
Company reviewed the contents of the August 3rd Press Release and announced the
letter of intent with Hellums. On the conference call, Mr. Little stated that
Parent's proposal was still under review and that the Company had no comment on
Parent's offer at that time.
On August 5, 1998, Parent and the Purchaser issued a press release
announcing, among other things, that the Purchaser intended to commence an offer
for all outstanding Shares at a price of $14.00 per Share.
Also on August 5, 1998, the Purchaser filed a complaint in the United
States District Court for the Western District of Texas, Midland/Odessa
Division. See Section 15 -- "Certain Legal Matters; Regulatory Approvals."
Also on August 5, 1998, the Company issued a press release responding to
Parent's August 5, 1988 press release and reconfirming the Company's willingness
to entertain discussions at a price higher than $16 per Share.
On August 6 and 7, 1998, Bear Stearns had discussions with Morgan Stanley
concerning the possibility of Parent and the Company meeting to discuss a
potential negotiated transaction.
On August 8, 1998, legal counsel for the Company and legal counsel for
Parent and the Purchaser negotiated, and the Company, Parent and the Purchaser
executed, a confidentiality agreement. Thereafter on August 8, 1998 and August
9, 1998, representatives of Parent, the Company, their respective legal counsel,
Bear Stearns and Morgan Stanley met in Houston, Texas to conduct financial due
diligence and to further consider and discuss a possible negotiated transaction
resulting in the acquisition of the Company by Parent. Following additional
conversations, financial due diligence and negotiations, on August 9, 1998 the
parties agreed to proceed with negotiation of a definitive agreement. Legal
counsel to Parent and the Purchaser then provided an initial draft of the Merger
Agreement to the Company and its legal counsel. On August 10, 1998, negotiations
were conducted with respect to the Merger Agreement.
At a meeting of the Board of Directors of Parent (the "Parent Board"), held
during the afternoon of August 10, 1998, the Parent Board unanimously approved
and adopted the Merger Agreement and the transactions contemplated thereby,
including the Offer and the Merger.
At a meeting of the Company Board, commenced during the evening of August
10, 1998 and reconvened during the morning of August 11, 1998, the Company Board
unanimously approved the Merger Agreement and the transactions contemplated
thereby, including the Offer and the Merger, and determined that the terms of
the Offer and the Merger are fair to, and in the best interests of, the holders
of Shares, and unanimously recommended that shareholders of the Company accept
the Offer and tender their Shares. At the Company Board meeting, Morgan Stanley
delivered to the Company Board its opinion to the effect that the consideration
to be received by the holders of Shares pursuant to the Offer and under the
terms of the Merger Agreement is fair to such holders from a financial point of
view.
Following the approval of the Company Board, on August 11, 1998, Parent,
the Purchaser and the Company executed and delivered the Merger Agreement and
issued a press release announcing the execution of the Merger Agreement and the
transactions contemplated thereby.
On August 17, 1998, the Purchaser and Parent commenced the Offer.
THE MERGER AGREEMENT
As of August 11, 1998, Parent, the Purchaser and the Company entered into
the Merger Agreement, pursuant to which the Purchaser agreed to make the Offer.
The following is a summary of certain provisions of
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the Merger Agreement. This summary does not purport to be complete and is
qualified in its entirety by reference to the complete text of the Merger
Agreement, a copy of which is filed with the Commission as Exhibit (c)(1) to the
Tender Offer Statement on Schedule 14D-1 filed by Parent and the Purchaser with
the Commission (the "Schedule 14D-1"). Capitalized terms not otherwise defined
below shall have the meanings set forth in the Merger Agreement. The Merger
Agreement may be examined and copies may be obtained at the places and in the
manner set forth in Section 7 of this Offer to Purchase.
The Offer. The Merger Agreement provides that the Purchaser will commence
the Offer and that, upon the terms and subject to the satisfaction or waiver of
the conditions of the Offer, the Purchaser will purchase all Shares validly
tendered pursuant to the Offer. The obligation of the Purchaser to accept for
payment and pay for any Shares validly tendered prior to the expiration of the
Offer is conditioned upon satisfaction of the Minimum Condition and the
satisfaction or waiver of the other conditions described in Annex A to the
Merger Agreement. The Merger Agreement provides that the Purchaser may not amend
or waive the Minimum Condition, or decrease the Offer Price or the number of
Shares sought, or amend any other condition of the Offer in any manner adverse
to the holders of Shares without the written consent of the Company.
Notwithstanding the foregoing provisions, if on the initial scheduled expiration
of the Offer (as it may be extended), all conditions to the Offer shall not have
been satisfied or waived, the Offer may be extended from time to time until
December 31, 1998. In addition, the Offer Price may be increased and the Offer
may be extended to the extent required by law in connection with such increase,
in each case without the consent of the Company.
Designation of Directors. The Merger Agreement provides that, promptly
upon the purchase of and payment for Shares by Parent or any of its subsidiaries
which represents at least a majority of the outstanding Shares (on a fully
diluted basis), Parent shall be entitled to designate such number of directors,
rounded up to the next whole number, on the Company Board so that the percentage
of Parent's nominees on the Company Board equals the percentage of outstanding
Shares beneficially owned by Parent, the Purchaser and their affiliates. The
Company shall, upon request by the Purchaser, use its best efforts promptly
either to increase the size of the Company Board or, at the Company's election,
secure the resignations of incumbent directors, and shall cause Parent's
designees to be so elected. Notwithstanding the foregoing, until the effective
time of the Merger (the "Effective Time"), the Company will use its reasonable
efforts to retain as members of the Company Board at least two directors who
were directors of the Company on the date of the Merger Agreement; provided,
that, subsequent to the purchase of and payment for Shares pursuant to the
Offer, Parent will always have its designees represent at least a majority of
the entire Company Board. The Company's obligation to appoint Parent's designees
to the Company Board is subject to compliance with Section 14(f) of the Exchange
Act and Rule 14f-1 promulgated thereunder. Following the election of Parent's
designees to the Company Board, any amendment of the Merger Agreement, any
termination of the Merger Agreement by the Company, any extension of time for
performance of any of the obligations of Parent or the Purchaser, or any waiver
of any condition or any of the Company's rights thereunder may be effected only
by the action of a majority of the directors of the Company then in office who
were directors on the date of the Merger Agreement, which action shall be deemed
to constitute the action of the full Company Board; provided, that, if there are
no such directors, such actions may be effected by the majority vote of the
entire Company Board.
The Merger. The Merger Agreement provides that, subject to the terms and
conditions thereof, the Purchaser will be merged with and into the Company, with
the Company continuing as the surviving corporation (the "Surviving
Corporation") and a wholly owned subsidiary of Parent. At Parent's election, the
Merger may be restructured so that the Company is merged with or into Parent or
any other direct or indirect subsidiary of Parent or so that any direct or
indirect subsidiary of Parent other than the Purchaser is merged with and into
the Company. At the Effective Time, each issued and outstanding Share (other
than Shares owned by Parent, the Purchaser or any other wholly owned Subsidiary
of Parent, Shares owned by the Company as treasury stock and Shares held by
holders who perfect any available appraisal rights under the TBCA) shall be
converted into the right to receive the Offer Price, without interest thereon,
and each issued and outstanding share of common stock of the Purchaser shall be
converted into and become one fully paid and nonassesable share of common stock
of the Surviving Corporation.
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Treatment of Options. The Merger Agreement provides that Parent and the
Company will take all actions necessary so that, immediately prior to the
Effective Time, the Company shall pay to the holder of each option to purchase
Shares, whether or not then vested or exercisable, which has been granted under
the Company's stock option plans an amount equal to the product of (A) the
excess, if any, of the Offer Price over the per share exercise price thereof and
(B) the number of Shares subject to such option. Each outstanding option will be
cancelled as of the Effective Time and all plans, programs or arrangements of
the Company providing for the issuance or grant of options or other interests in
the capital stock of the Company will be terminated.
Conditions. The respective obligations of each party to effect the Merger
are subject to the satisfaction, on or prior to the closing of the Merger, of
each of the following conditions: (a) the Merger Agreement and the Merger shall
have been approved and adopted by the requisite vote of the holders of Common
Stock if required by the TBCA and the Company Articles, in order to consummate
the Merger; (b) no statute, rule, order, decree or regulation shall have been
enacted or promulgated by any foreign or domestic government or any governmental
agency or authority of competent jurisdiction which prohibits the consummation
of the Merger and all foreign or domestic governmental consents, orders and
approvals required for the consummation of the Merger and the transactions
contemplated by the Merger Agreement shall have been obtained and shall be in
effect at the Effective Time; (c) there shall be no order or injunction of a
foreign or United States federal or state court or other governmental authority
of competent jurisdiction in effect precluding, restraining, enjoining or
prohibiting consummation of the Merger; and (d) Parent, the Purchaser or their
affiliates shall have purchased Shares pursuant to the Offer.
Shareholders' Meeting. Pursuant to the Merger Agreement, the Company
shall, if required by applicable law in order to consummate the Merger, (i) duly
call, give notice of, convene and hold a special meeting of its shareholders as
soon as practicable following the acceptance for payment and purchase of Shares
by the Purchaser pursuant to the Offer for the purpose of considering and taking
action upon the Merger Agreement; (ii) prepare and file with the Commission a
preliminary proxy or information statement relating to the Merger and the Merger
Agreement and shall use its reasonable efforts to (A) cause a definitive Proxy
Statement to be mailed to its shareholders and (B) obtain the necessary
approvals of the Merger and the Merger Agreement by its shareholders; and (iii)
subject to the fiduciary obligations of the Company Board, the Company shall
include in the Proxy Statement the recommendation of the Company Board that
shareholders of the Company vote in favor of the approval of the Merger and the
adoption of the Merger Agreement. In the event that Parent, the Purchaser or any
other subsidiary of Parent shall acquire at least 90% of the outstanding Shares,
pursuant to the Offer or otherwise, the parties shall take all necessary and
appropriate action to cause the Merger to become effective as soon as
practicable after such acquisition, without a meeting of the Company's
shareholders, in accordance with the TBCA and the NJBCA.
Representations and Warranties. The Merger Agreement contains various
representations and warranties of the parties thereto, including representations
by the Company as to, among other things (i) organization and good standing,
(ii) capitalization, (iii) authorization, validity of the Merger Agreement and
all required Company action taken with respect to the Offer and the Merger, (iv)
required consents or approvals, (v) no material misstatements in filings made
with the Commission or financial statements, (vi) absence of material adverse
changes,(vii) no undisclosed liabilities, (viii) no misstatements or omissions
of a material fact in the Proxy Statement or other filings with the Commission
with respect to the Offer and the Merger, (ix) employee benefit plans and ERISA,
(x) litigation, (xi) interim conduct of businesses, (xii) compliance with
environmental laws and regulations, (xiii) tax returns and tax liabilities,
(xiv) labor relations, (xv) compliance with all laws, (xvi) insurance, (xvii)
material contracts, (xviii) valid title to, or leasehold interests in, all
property, (xix) valid title to, or leasehold interests in, all equipment, (xx)
all necessary permits and licenses, (xxi) intellectual property, (xxii) receipt
of fairness opinion from financial advisor and (xxiii) vote required to approve
the Merger. In addition, the Merger Agreement contains representations by Parent
and the Purchaser as to, among other things, (i) organization and good standing,
(ii) authorization, validity of the Merger Agreement and all required action
taken with respect to the Offer and the Merger, (iii) required consents or
approvals, (iv) information in the Proxy Statement, (v) financing the Offer and
the Merger and (vi) operations of the Purchaser.
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Interim Operations. Pursuant to the Merger Agreement, the Company has
agreed that after the date of the Merger Agreement and prior to the time
Parent's designees have been elected to, and constitute a majority of, the
Company Board, unless Parent otherwise agrees in writing and except as otherwise
contemplated by the Merger Agreement the business of the Company and each of its
Subsidiaries shall be conducted only in the ordinary and usual course and, to
the extent consistent therewith, each of the Company and its Subsidiaries shall
use its best efforts to preserve its business organization intact and maintain
its existing relations with customers, suppliers, employees, creditors and
business partners. Without limiting the generality of the foregoing, during such
period, the Company shall not, and shall not permit any of its Subsidiaries to:
(a) sell, transfer or pledge any Common Stock, preferred stock of the
Company or capital stock of any of its Subsidiaries beneficially owned by
it, or split, combine or reclassify the outstanding Common Stock or any
outstanding capital stock of any of its Subsidiaries;
(b) except for those actions contemplated by the Merger Agreement, (i)
amend its articles of incorporation or by-laws or similar organizational
documents; (ii) declare, set aside or pay any dividend or other
distribution payable in cash, stock or property with respect to its capital
stock; (iii) issue, sell, pledge, dispose of or encumber any additional
shares of, or securities convertible into or exchangeable for, or options,
warrants, calls, commitments or rights of any kind to acquire, any shares
of capital stock of any class of the Company or any of its Subsidiaries,
other than Shares reserved for issuance on the date of the Merger Agreement
upon exercise of outstanding Rights pursuant to the Rights Agreement or
issuances pursuant to the exercise of stock options outstanding on the date
of the Merger Agreement; (iv) transfer, lease, license, sell, mortgage,
pledge, dispose of, or encumber any material assets other than in the
ordinary and usual course of business and consistent with past practice, or
incur or modify any material indebtedness or other liability, other than in
the ordinary and usual course of business and consistent with past
practice; or (v) redeem, purchase or otherwise acquire directly or
indirectly more than 5,000 shares of its capital stock;
(c)(i) grant any increase in the compensation payable or to become
payable by the Company or any of its Subsidiaries to any of its executive
officers or key employees or (A) adopt any new, or (B) amend or otherwise
increase, or accelerate the payment or vesting of the amounts payable or to
become payable under any existing, bonus, incentive compensation, deferred
compensation, severance, profit sharing, stock option, stock purchase,
insurance, pension, retirement or other employee benefit plan agreement or
arrangement; or (ii) enter into any employment or severance agreement with
or, except in accordance with the existing written policies of the Company,
grant any severance or termination pay to any officer, director or employee
of the Company or any of its Subsidiaries;
(d) modify, amend or terminate any of its material contracts or waive,
release or assign any material rights or claims, except in the ordinary
course of business and consistent with past practice;
(e) permit any material insurance policy naming it as a beneficiary or
a loss payable payee to be cancelled or terminated without notice to
Parent, except in the ordinary course of business and consistent with past
practice;
(f)(i) incur or assume any long-term debt, or except in the ordinary
course of business, incur or assume any short-term indebtedness in amounts
not consistent with past practice; (ii) assume, guarantee, endorse or
otherwise become liable or responsible (whether directly, contingently or
otherwise) for the obligations of any other person, except in the ordinary
course of business and consistent with past practice; (iii) make any loans,
advances or capital contributions to, or investments in, any other person
(other than to wholly owned Subsidiaries of the Company or customary loans
or advances to employees in accordance with past practice); or (iv) except
for commitments or transactions not in excess of $500,000, enter into any
material commitment or transaction (including, but not limited to, any
borrowing, capital expenditure or purchase, sale or lease of assets);
(g) change any of the accounting principles used by it unless required
by GAAP;
(h) pay, discharge or satisfy any claims, liabilities or obligations
(absolute, accrued, asserted or unasserted, contingent or otherwise), other
than the payment, discharge or satisfaction of any such
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claims, liabilities or obligations, (x) in the ordinary course of business
and consistent with past practice, properly reflected or reserved against
in, the consolidated financial statements (or the notes thereto) as of and
for the fiscal year ended March 31, 1998 of the Company and its
consolidated Subsidiaries, (y) incurred since March 31, 1998 in the
ordinary course of business and consistent with past practice or (z) which
are legally required to be paid, discharged or satisfied (provided that if
such claims, liabilities or obligations referred to in this clause (z) are
legally required to be paid and are also not otherwise payable in
accordance with clauses (x) or (y) above, the Company will notify Parent in
writing if such claims, liabilities or obligations exceed, individually or
in the aggregate, $500,000 in value, reasonably in advance of their
payment) (except for reasonable, documented fees and expenses related to
the Merger Agreement and the transactions contemplated thereby);
(i) adopt a plan of complete or partial liquidation, dissolution,
merger, consolidation, restructuring, recapitalization or other
reorganization of the Company or any of its Subsidiaries (other than the
Merger);
(j) take, or agree to commit to take, any action that would make any
representation or warranty of the Company contained herein inaccurate in
any material respect at, or as of any time prior to, the Effective Time;
and
(k) enter into an agreement, contract, commitment or arrangement to do
any of the foregoing, or to authorize, recommend, propose or announce an
intention to do any of the foregoing.
Rights Agreement. Pursuant to the Merger Agreement, the Company has agreed
that except for the Rights Amendment or amendments approved in writing by Parent
or the Purchaser, the Company will not amend the Rights Agreement in any manner
and that the Company will not redeem the rights unless such redemption is
consented to in writing by Parent prior to such redemption.
No Solicitation. Pursuant to the Merger Agreement, the Company has agreed
that neither it nor any of its Subsidiaries or affiliates shall (and the Company
shall use its best efforts to cause its and each of its Subsidiaries' officers,
directors, employees, representatives and agents, including, but not limited to,
investment bankers, attorneys and accountants, not to), directly or indirectly,
encourage, solicit, participate in or initiate discussions or negotiations with,
provide any information to, or enter into any agreement with, any corporation,
partnership, person or other entity or group (other than Parent, any of its
affiliates or representatives) concerning any merger, tender offer, exchange
offer, sale of assets, sale of shares of capital stock or debt securities or
similar transactions involving the Company or any Subsidiary, division or
operating or principal business unit of the Company (an "Acquisition Proposal").
The Company has further agreed that it will immediately cease any existing
activities, discussions or negotiations with any parties conducted heretofore
with respect to any of the foregoing. Notwithstanding the foregoing, the Company
may, directly or indirectly, provide access and furnish information concerning
its business, properties or assets to any corporation, partnership, person or
other entity or group pursuant to appropriate confidentiality agreements, and
may negotiate and participate in discussions and negotiations with such entity
or group if (w) such entity or group has submitted an unsolicited bona fide
written proposal to the Company Board relating to any such transaction, (x) such
proposal provides for the acquisition for cash and/or publicly traded securities
of all of the outstanding Shares, (y) the Company Board determines in good
faith, after consultation with its independent financial advisor, that such
proposal is financially superior to the Offer and the Merger and fully financed
or reasonably capable of being financed, and (z) the Company Board determines in
good faith, after consultation with independent legal counsel, that the failure
to provide such information or access or to engage in such discussions or
negotiations would violate their fiduciary duties to the Company's shareholders
under applicable law. A proposal meeting all of the criteria in the preceding
sentence is referred to in the Merger Agreement as a "Superior Proposal."
Nothing contained in this section of the Merger Agreement shall prohibit the
Company or the Company Board from taking and disclosing to the Company's
shareholders a position with respect to a tender offer by a third party pursuant
to Rules l4d-9 and l4e-2(a) promulgated under the Exchange Act. The Company has
agreed to immediately notify Parent of any Acquisition Proposal, or if an
inquiry is made, will keep Parent fully apprised of all developments with
respect to any Acquisition Proposal, will immediately provide to Parent copies
of any written materials received by the Company in
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connection with any Acquisition Proposal, discussion, negotiation or inquiry and
the identify of the party making any Acquisition Proposal or inquiry or engaging
in such discussion or negotiation. The Company has also agreed to promptly
provide to Parent any non-public information concerning the Company provided to
any other party which was not previously provided to Parent. The Company has
agreed not to release any third party from, or waive any provisions of, any
confidentiality or standstill agreement to which the Company is a party.
Notwithstanding anything to the contrary contained in the Merger Agreement,
except in connection with the valid termination of the Merger Agreement in
connection with a Superior Proposal, the Company has agreed that neither the
Company Board nor any committee thereof shall (i) withdraw, or modify or change
in a manner adverse to Parent or the Purchaser, or propose to withdraw, or
propose to modify or change in a manner adverse to Parent or the Purchaser, the
approval or recommendation by the Company Board or any such committee thereof of
the Offer, the Merger Agreement or the Merger, (ii) approve or recommend or
propose to approve or recommend, any Acquisition Proposal or (iii) enter into
any agreement with respect to any Acquisition Proposal.
Directors' and Officers' Indemnification. The Merger Agreement provides
that for six years after the Effective Time, Parent shall, or shall cause the
Surviving Corporation to, indemnify, defend and hold harmless the present and
former officers, directors, employees and agents of the Company and its
Subsidiaries (each an "Indemnified Party") against all losses, claims, damages,
liabilities, fees and expenses (including reasonable fees and disbursements of
counsel and judgments, fines, losses, claims, liabilities and amounts paid in
settlement (provided that any such settlement is effected with the written
consent of the Parent or the Surviving Corporation)) in connection with any
claim, suit, action, proceeding or investigation that is, in whole or in part,
based on or arising out of the fact that such person is or was a director,
officer, employee or agent of the Company or its Subsidiaries and arising out of
actions or omissions occurring at or prior to the Effective Time, to the fullest
extent permitted under Texas law.
Disposition of Litigation. Under the terms of the Merger Agreement, each
party to the Merger Agreement has agreed to a dismissal with prejudice of the
Complaint (as defined herein) and any and all counterclaims asserted in
connection with the Complaint, with each party bearing its own costs and
expenses in connection therewith. The Company has also agreed that it will not
settle any litigation currently pending, or commenced after the date hereof,
against the Company or any of its directors by any shareholder of the Company
relating to the Offer or the Merger Agreement, without the prior written consent
of Parent.
Consulting Agreements. Pursuant to the Merger Agreement, the Company has
agreed to use its best efforts to cause Mr. Little, Mr. James J. Byerlotzer,
Chief Operating Officer of the Company, and Mr. Joseph B. Eustace, Vice
President of East Texas/Gulf Coast Region of the Company, to enter into
definitive consulting agreements with Parent and the Purchaser on the terms set
forth in the term sheets executed by Messrs. Little, Byerlotzer and Eustace. The
term sheets provide that, in connection with the Merger, for a period of three
years, Messrs. Little, Byerlotzer and Eustace will provide consulting services
to Parent and the Purchaser (in the case of Mr. Little, estimated at less than
40 hours per month) for which they will receive annual compensation of $250,000,
$100,000 and $75,000, respectively. The term sheets include covenants not to
compete in certain businesses and the definitive agreements will include usual
and customary terms, including terms relating to confidentiality of information
and non-solicitation of employees.
Termination. The Merger Agreement provides that it may be terminated or
abandoned at any time prior to the Effective Time, whether before or after
shareholder approval thereof:
(a) by the mutual consent of the Parent Board and the Company Board.
(b) by either of the Company Board or the Parent Board:
(i) if Shares shall not have been purchased pursuant to the Offer
on or prior to December 31, 1998; provided, however, that the right to
terminate the Merger Agreement pursuant to this paragraph shall not be
available to any party whose failure to fulfill any obligation under the
Merger Agreement has been the cause of, or resulted in, the failure of
the Purchaser to purchase Shares pursuant to the Offer on or prior to
such date; or
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(ii) if any Governmental Entity shall have issued an order, decree
or ruling or taken any other action (which order, decree, ruling or
other action the parties shall use their reasonable efforts to lift), in
each case permanently restraining, enjoining or otherwise prohibiting
the transactions contemplated by the Merger Agreement and such order,
decree, ruling or other action shall have become final and
non-appealable.
(c) by the Company Board:
(i) if, prior to the purchase of Shares pursuant to the Offer, the
Company Board shall have withdrawn, or modified or changed in a manner
adverse to Parent or the Purchaser its approval or recommendation of the
Offer, the Merger Agreement or the Merger in order to approve and permit
the Company to execute a definitive agreement providing for a Superior
Proposal; provided that (A) at least five (5) business days prior to
terminating the Merger Agreement pursuant to this paragraph the Company
has provided Parent with written notice advising Parent that the Company
Board has received a Superior Proposal that it intends to accept,
specifying the material terms and conditions of such Superior Proposal
and identifying the person making such Superior Proposal, and (B) the
Company shall have caused its financial and legal advisors to negotiate
in good faith with Parent to make such adjustments in the terms and
conditions of the Merger Agreement as would enable the Company to
proceed with the transactions contemplated therein on such adjusted
terms; and further provided that simultaneously with any termination of
the Merger Agreement pursuant to this paragraph, the Company shall pay
to Parent the Termination Fee (as defined below); and further provided
that the Company may not terminate the Merger Agreement pursuant to this
paragraph if the Company is in material breach of the Merger Agreement;
or
(ii) if, prior to the purchase of Shares pursuant to the Offer,
Parent or the Purchaser breaches or fails in any material respect to
perform or comply with any of its material covenants and agreements
contained in the Merger Agreement or breaches its representations and
warranties in any material respect; or
(iii) if Parent or the Purchaser shall have terminated the Offer,
or the Offer shall have expired, without Parent or the Purchaser, as the
case may be, purchasing any Shares pursuant thereto; provided that the
Company may not terminate the Merger Agreement pursuant to this
paragraph if the Company is in material breach of the Merger Agreement;
or
(iv) if, due to an occurrence that if occurring after the
commencement of the Offer would result in a failure to satisfy any of
the conditions set forth in Annex A to the Merger Agreement, Parent, the
Purchaser or any of their affiliates shall have failed to commence the
Offer on or prior to five business days following the date of the
initial public announcement of the Offer; provided, that the Company may
not terminate the Merger Agreement pursuant to this paragraph if the
Company is in material breach of the Merger Agreement.
(d) by the Parent Board:
(i) if, due to an occurrence that if occurring after the
commencement of the Offer would result in a failure to satisfy any of
the conditions set forth in Annex A to the Merger Agreement, Parent, the
Purchaser, or any of their affiliates shall have failed to commence the
Offer on or prior to five business days following the date of the
initial public announcement of the Offer; provided that Parent may not
terminate this Agreement pursuant to this paragraph if Parent or the
Purchaser is in material breach of the Merger Agreement; or
(ii) if prior to the purchase of Shares pursuant to the Offer, the
Company Board shall have withdrawn, or modified or changed in a manner
adverse to Parent or the Purchaser its approval or recommendation of the
Offer, the Merger Agreement or the Merger or shall have recommended an
Acquisition Proposal or offer, or shall have executed an agreement in
principle (or similar agreement) or definitive agreement providing for a
tender offer or exchange offer for any shares of capital stock of the
Company, or a merger, consolidation or other business combination with a
person or entity other than Parent, the Purchaser or their affiliates
(or the Company Board resolves
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to do any of the foregoing); provided that Parent may not terminate the
Merger Agreement pursuant to this paragraph if Parent or the Purchaser
is in material breach of the Merger Agreement; or
(iii) if Parent or the Purchaser, as the case may be, shall have
terminated the Offer, or the Offer shall have expired without Parent or
the Purchaser, as the case may be, purchasing any Shares thereunder,
provided that Parent may not terminate the Merger Agreement pursuant to
this paragraph if it or the Purchaser has failed to purchase Shares in
the Offer in violation of the material terms thereof or hereof.
Effect of Termination; Termination Fee. The Merger Agreement provides that
in the event of the termination of the Merger Agreement written notice thereof
shall forthwith be given to the other party or parties specifying the provision
hereof pursuant to which such termination is made, and the Merger Agreement
shall forthwith become null and void, and there shall be no liability on the
part of the Parent, the Purchaser or the Company except (A) for fraud or for
intentional material breach of the Merger Agreement and (B) as set forth in this
paragraph.
Set forth below are the circumstances under which a Termination Fee (as
defined below) is payable under the terms of the Merger Agreement. All
references to paragraph numbers refer to the section entitled "Termination"
above.
If (w) the Company Board shall terminate the Merger Agreement pursuant to
paragraph (c)(i), (x) the Parent Board shall terminate the Merger Agreement
pursuant to paragraph (d)(ii), (y) the Company Board shall terminate the Merger
Agreement pursuant to paragraph (b)(i) or paragraph (c)(iii) or the Parent Board
shall terminate the Merger Agreement pursuant to paragraph (b)(i) or (d)(iii)
and prior thereto there shall have been publicly announced another Acquisition
Proposal or (z) the Parent Board shall terminate the Merger Agreement pursuant
to paragraph (d)(i) or (d)(iii) in each case due to a material breach of the
Merger Agreement by the Company, then in any such case as described in clause
(w), (x), (y) or (z) (each such case of termination being referred to as a
"Trigger Event"), the Company shall pay to Parent (not later than one business
day after such termination of the Merger Agreement or, in the case of any
termination by the Company pursuant to paragraph (c)(i), simultaneously with
such termination) an amount equal to $10 million (the "Termination Fee").
The Merger Agreement provides that upon the termination of the Merger
Agreement due to the occurrence of a Trigger Event, the Company agrees that, in
addition to the payment of the Termination Fee referred to above, the Company
shall promptly reimburse Parent for all actual, documented and reasonable
out-of-pocket expenses incurred, or to be incurred by Parent, the Purchaser and
their affiliates (including the fees and expenses of legal counsel, accountants,
financial advisors, other consultants, financial printers and financing sources)
("Expenses") in connection with the Offer, the Merger and the consummation of
the transactions contemplated by the Merger Agreement, in an amount not to
exceed $5 million in the aggregate.
The Merger Agreement also provides that if the Company shall terminate the
Merger Agreement pursuant to paragraph (c)(ii), and the Company is not in
material breach of the Merger Agreement at the time of such termination, or if
the Purchaser fails to fund the purchase of Shares pursuant to the Offer as a
result of its failure to secure financing for the Offer and the Merger pursuant
to the Financing Commitment and/or the Proposed Bridge Arrangements or otherwise
secure financing, Parent shall pay to the Company (not later than one business
day after such termination) an amount equal to the Termination Fee, together
with an amount not to exceed $5 million as reimbursement to the Company for its
actual, documented and reasonable out-of-pocket Expenses.
Fees and Expenses. Except as set forth above, whether or not the Merger is
consummated, the Merger Agreement provides that all costs and expenses incurred
in connection with the Merger Agreement and the transactions contemplated
thereby shall be paid by the party incurring such expenses.
THE CONFIDENTIALITY AGREEMENT
The following is a summary of certain provisions of the Confidentiality
Agreement, dated August 8, 1998 between the Company, Parent and the Purchaser
(the "Confidentiality Agreement"). The following summary
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of the Confidentiality Agreement does not purport to be complete and is
qualified in its entirety by reference to the text of the Confidentiality
Agreement, which is filed as Exhibit (c)(2) to the Schedule 14D-1 and
incorporated herein by reference. The Confidentiality Agreement may be examined
and copies may be obtained at the places and in the manner set forth in Section
7 of this Offer to Purchase.
The Confidentiality Agreement contains customary provisions pursuant to
which, among other matters, the parties have agreed to keep confidential all
nonpublic, confidential or proprietary information furnished to each party
relating to the Company or Parent, as the case may be, subject to certain
exceptions (the "Confidential Information"), and to use the Confidential
Information solely in connection with the evaluation of a possible negotiated
transaction between the parties.
11. PURPOSE OF THE OFFER AND THE MERGER; PLANS FOR THE COMPANY.
General. The purpose of the Offer, the Merger and the Merger Agreement is
to enable Parent to acquire control of, and the entire equity interest in, the
Company. The Offer is being made pursuant to the Merger Agreement and is
intended to increase the likelihood that the Merger will be effected. The
purpose of the Merger is to acquire all Shares not beneficially owned by the
Purchaser following consummation of the Offer.
Plans for the Company. Parent is conducting a detailed review of the
Company and its assets, corporate structure, dividend policy, capitalization,
operations, properties, policies, management and personnel and will consider,
subject to the terms of the Merger Agreement, what, if any, changes would be
desirable in light of the circumstances existing upon completion of the Offer.
Such changes could include changes in the Company's business, corporate
structure, capitalization, board of directors, management or dividend policy,
although, except as disclosed in this Offer to Purchase, Parent has no current
plans with respect to any of such matters. In addition, in connection with the
Merger, Parent is considering a plan whereby the Company would be merged with
and into Parent.
Parent anticipates that the Merger should result in cost savings in excess
of $10 million per year from, among other things, greater efficiencies in
operations and business processes and increased economies of scale. Parent's
projections regarding cost savings and its other plans regarding the Company
after consummation of the Merger are forward-looking statements. For a
discussion of factors regarding forward-looking statements, see Section 7.
Except as indicated in this Offer to Purchase, the Purchaser has no present
plans or proposals which relate to or would result in an extraordinary corporate
transaction, such as a merger, reorganization or liquidation, involving the
Company or any of its subsidiaries, a sale or transfer of a material amount of
assets of the Company or any of its subsidiaries or any material change in the
Company's capitalization or dividend policy or any other material changes in the
Company's corporate structure or business, or the composition of the Board or
management.
Shareholder Approval. In general, the TBCA provides that the approval of a
company's Board of Directors and the affirmative vote of the holders of
two-thirds of the outstanding shares of common stock, unless a company's
articles of incorporation provide for a different percentage, are required to
adopt and approve a merger agreement and the transactions contemplated thereby.
The Company Articles provide that for all matters requiring approval by
two-thirds of the Company's shareholders under the TBCA, such matters shall be
deemed to be approved upon the affirmative vote of the holders of a majority of
Shares. In addition, the Company has represented in the Merger Agreement that
the Company Board has approved the Merger Agreement and the transactions
contemplated thereby and the Merger Agreement has been duly authorized by all
necessary corporate action on the part of the Company, subject to the approval
of the Merger by the Company's shareholders in accordance with the TBCA and the
Company Articles. The Company has also represented that the affirmative vote of
the holders of a majority of the outstanding Shares is the only vote of the
holders of any class or series of the Company's capital stock necessary to
approve the Merger. Therefore, if the Purchaser acquires, through the Offer or
otherwise, voting power with respect to at least a majority of the outstanding
Shares (which would be the case if the Minimum Condition is satisfied and the
Purchaser were to accept for payment Shares tendered pursuant to the Offer), the
Purchaser would have sufficient voting power to effect the Merger without the
vote of any other shareholders.
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"Short Form" Merger. The TBCA provides that if a parent corporation owns
90% or more of each class of outstanding shares of another corporation, a merger
between the two corporations can be effected without any action or vote by the
shareholders of either corporation. Accordingly, if the Purchaser acquires at
least 90% or more of the outstanding Shares pursuant to the Offer or otherwise,
the Purchaser will be able to approve the Merger without a vote of the Company's
shareholders. In such event, under the terms of the Merger Agreement, the
parties have agreed to take all appropriate action to cause the Merger to become
effective as soon as practicable after such acquisition. If the Purchaser does
not acquire at least 90% of the outstanding Shares pursuant to the Offer or
otherwise, a significantly longer time may be required to effect a Merger
because a vote of the Company's shareholders would be required under the TBCA.
Texas Business Combination Statute. Article 13.03 of the TBCA, in general,
prohibits a Texas corporation such as the Company from engaging in a "Business
Combination" (defined as a variety of transactions, including mergers, as set
forth below) with an "Affiliated Shareholder" (defined generally as a person
that is the beneficial owner of 20% or more of a corporation's outstanding
voting stock) for a period of three years following the date that such person
became an Affiliated Shareholder unless (a) prior to the date such person became
an Affiliated Shareholder, the board of directors of such corporation approved
either the Business Combination or the transaction that resulted in the
shareholder becoming an Affiliated Shareholder or (b) not less than six months
after the date such person becomes an Affiliated Shareholder, the Business
Combination is approved, at a meeting of shareholders and not by written
consent, duly called for that purpose, by the affirmative vote of the holders of
at least 66 2/3% of the outstanding voting stock of the corporation not owned by
the Affiliated Shareholder (or the affiliates or associates of the Affiliated
Shareholder).
The Company has represented in the Merger Agreement that the provisions of
Article 13.03 are not applicable to any of the transactions contemplated by the
Merger Agreement, including the Merger and the purchase of Shares in the Offer.
Appraisal Rights and "Going Private" Transactions. No appraisal rights are
available in connection with the Offer. Under Article 5.11 of the TBCA,
shareholders will have the right to elect to dissent from the Merger and receive
a judicial determination and payment of the "fair value" (excluding any element
of value arising from the accomplishment or expectation of the Offer and Merger)
of their Shares, provided that the applicable statutory procedures under the
TBCA are followed. The value so determined could be the same as, or more or less
than, the price per Share offer pursuant to the Offer and the Merger. The
Commission has adopted Rule 13e-3 under the Exchange Act which is applicable to
certain "going-private" transactions. The Purchaser does not believe that Rule
13e-3 will be applicable to the Merger. If applicable, Rule 13e-3 would require,
among other things, that certain financial information concerning the Company
and certain information relating to the fairness of the Merger and the
consideration offered to minority shareholders be filed with the Commission and
distributed to minority shareholders before the consummation of any such
transaction.
The purchase of a substantial number of Shares pursuant to the Offer may
result in the termination, upon application of the Company to the Commission, of
the Company's registration under the Exchange Act. See Section 13.
12. DIVIDENDS AND DISTRIBUTIONS. The Merger Agreement provides that
neither the Company nor any of its Subsidiaries shall: (i) declare, set aside or
pay any dividend or other distribution payable in cash, stock or property with
respect to its capital stock; (ii) issue, sell, pledge, dispose of or encumber
any additional shares of, or securities convertible into or exchangeable for, or
options, warrants, calls, commitments or rights of any kind to acquire, any
shares of capital stock of any class of the Company or its Subsidiaries, other
than Shares reserved for issuance on August 11, 1998 pursuant to the exercise of
outstanding Rights pursuant to the Rights Agreement or issuances pursuant to the
exercise of options outstanding on August 11, 1998; (iii) redeem, purchase or
otherwise acquire, directly or indirectly, more than 5,000 Shares of its capital
stock.
13. EFFECT OF THE OFFER ON THE MARKET FOR THE SHARES; NYSE LISTING AND
EXCHANGE ACT REGISTRATION. The purchase of Shares pursuant to the Offer will
reduce the number of Shares that might otherwise trade publicly and could reduce
the number of holders of Shares, which could adversely affect the liquidity and
market value of the remaining Shares held by the public.
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Depending upon the number of Shares purchased pursuant to the Offer, the
Shares may no longer meet the requirements of the NYSE for continued listing.
According to the NYSE's published guidelines, the NYSE would consider delisting
the Shares if, among other things, (i) the number of record holders of at least
100 shares should fall below 1,200, (ii) the number of publicly held Shares
(exclusive of holdings of officers, directors, members of their immediate
families and other concentrated holdings of 10% or more) should fall below
600,000 or (iii) the aggregate market value of publicly held Shares should fall
below $5,000,000. If the NYSE were to delist the Shares, it is possible that the
Shares would trade on another securities exchange or in the over-the-counter
market and that price or other quotations would be reported by such exchange or
through NASDAQ or other sources. The extent of the public market for such Shares
and the availability of such quotations would depend, however, upon such factors
as the number of shareholders and/or the aggregate market value of such Shares
remaining at such time, the interest in maintaining a market in the Shares on
the part of securities firms, the possible termination of registration under the
Exchange Act as described below and other factors. The Purchaser cannot predict
whether the reduction in the number of Shares that might otherwise trade
publicly would have an adverse or beneficial effect on the market price for, or
marketability of, the Shares or whether it would cause future market prices to
be greater or lesser than the price offered pursuant to the Offer.
The Shares are currently "margin securities" under the regulations of the
Board of Governors of the Federal Reserve System (the "Federal Reserve Board"),
which has the effect, among other things, of allowing brokers to extend credit
on the collateral of the Shares. Depending upon factors similar to those
described above regarding listing and market quotations, following the Offer, it
is possible that the Shares might no longer constitute "margin securities" for
purposes of the margin regulations of the Federal Reserve Board, in which event
such Shares could no longer be used as collateral for loans made by brokers.
The Shares are currently registered under the Exchange Act. Such
registration may be terminated upon application of the Company to the Commission
if the Shares are not listed on a national securities exchange and there are
fewer than 300 record holders of the Shares. The termination of registration of
the Shares under the Exchange Act would substantially reduce the information
required to be furnished by the Company to holders of Shares and to the
Commission and would make certain provisions of the Exchange Act, such as the
short-swing profit recovery provisions of Section 16(b), the requirement of
furnishing a proxy statement in connection with shareholders' meetings pursuant
to Section 14(a), and the requirements of Rule 13e-3 under the Exchange Act with
respect to "going private" transactions, no longer applicable to the Company.
See Section 11. In addition, "affiliates" of the Company and persons holding
"restricted securities" of the Company may be deprived of the ability to dispose
of such securities pursuant to Rule 144 promulgated under the Securities Act. If
registration of the Shares under the Exchange Act were terminated, the Shares
would no longer be "margin securities". The Purchaser intends to seek to cause
the Company to make an application for termination of registration of the Shares
under the Exchange Act as soon after consummation of the Offer as the
requirements for termination of the registration of the Shares are met.
14. CERTAIN CONDITIONS OF THE OFFER. Notwithstanding any other provisions
of the Offer, and in addition to (and not in limitation of) the Purchaser's
rights to extend and amend the Offer at any time in its sole discretion (subject
to the provisions of the Merger Agreement), the Purchaser shall not be required
to accept for payment or, subject to any applicable rules and regulations of the
Commission, including Rule 14e-1(c) under the Exchange Act (relating to the
Purchaser's obligation to pay for or return tendered Shares promptly after
termination or withdrawal of the Offer), pay for, and may delay the acceptance
for payment of or, subject to the restriction referred to above, the payment
for, any tendered Shares, and may terminate the Offer as to any Shares not then
paid for if (i) any applicable waiting period under the HSR Act has not expired
or terminated, (ii) the Minimum Condition has not been satisfied, (iii) the
Rights Agreement shall not have been amended in a manner which renders the
Rights inoperative with respect to any acquisition of Shares by Parent or the
Purchaser, (iv) Purchaser has not received funds under the Commitment Letter to
enable the Purchaser to purchase all Shares outstanding pursuant to the Offer
and the Merger or has not obtained a definitive financing commitment on terms
substantially similar to those contained in either of the Proposed
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Bridge Arrangements or (v) at any time on or after August 11, 1998 and before
the time of payment for any such Shares, any of the following events shall occur
or shall be determined by the Purchaser to have occurred:
(a) there shall have been any action taken, or any statute, rule,
regulation, judgment, order or injunction promulgated, entered, enforced,
enacted, issued or applicable to the Offer or the Merger by any domestic or
foreign federal or state governmental regulatory or administrative agency
or authority or court or legislative body or commission which directly or
indirectly (l) prohibits, or imposes any material limitations on, Parent's
or the Purchaser's ownership or operation (or that of any of their
respective Subsidiaries (as defined in the Merger Agreement) or affiliates)
of all or a material portion of their or the Company's businesses or
assets, or compels Parent or the Purchaser or their respective Subsidiaries
and affiliates to dispose of or hold separate any material portion of the
business or assets of the Company or Parent and their respective
Subsidiaries, in each case taken as a whole, (2) prohibits, or makes
illegal the acceptance for payment, payment for or purchase of Shares or
the consummation of the Offer or the Merger, (3) results in the delay in or
restricts the ability of the Purchaser, or renders the Purchaser unable, to
accept for payment, pay for or purchase some or all of the Shares, (4)
imposes material limitations on the ability of the Purchaser or Parent
effectively to exercise full rights of ownership of the Shares, including,
without limitation, the right to vote the Shares purchased by it on all
matters properly presented to the Company's shareholders, or (5) otherwise
materially adversely affects the consolidated financial condition,
businesses or results of operations of the Company and its Subsidiaries,
taken as a whole;
(b) there shall have occurred (1) any general suspension of trading
in, or limitation on prices for, securities on the NYSE for a period in
excess of three hours (excluding suspensions or limitations resulting
solely from physical damage or interference with such exchanges not related
to market conditions), (2) a declaration of a banking moratorium or any
suspension of payments in respect of banks in the United States (whether or
not mandatory), (3) a commencement of a war, armed hostilities or other
international or national calamity directly or indirectly involving the
United States, (4) any limitation (whether or not mandatory) by any foreign
or United States governmental authority on the extension of credit by banks
or other financial institutions, (5) any decline in either the Dow Jones
Industrial Average or the Standard & Poor's Index of 500 Industrial
Companies by an amount in excess of 20% measured from the close of business
on August 11, 1998 or (6) in the case of any of the foregoing existing at
the time of the commencement of the Offer, a material acceleration or
worsening thereof;
(c) the representations and warranties of the Company set forth in the
Merger Agreement shall not be true and correct as of the date of
consummation of the Offer as though made on or as of such date, and the
failure to be true and correct has or is reasonably likely to have a
material adverse effect on the Company, except (i) for changes specifically
permitted by the Merger Agreement and (ii) those representations and
warranties that address matters only as of a particular date are true and
correct as of such date, or the Company shall have breached or failed in
any material respect to perform or comply with any obligation, agreement or
covenant required by the Merger Agreement to be performed or complied with
by it and such failure shall have or be reasonably likely to have a
material adverse effect on the Company;
(d) the Merger Agreement shall have been terminated in accordance with
its terms;
(e) (i) it shall have been publicly disclosed or Parent or the
Purchaser shall have otherwise learned that any person, entity or "group"
(as defined in Section 13(d)(3) of the Exchange Act), other than Parent or
its affiliates or any group of which any of them is a member, shall have
acquired beneficial ownership (determined pursuant to Rule 13d-3
promulgated under the Exchange Act) of more than 14.9% of any class or
series of capital stock of the Company (including the Shares), through the
acquisition of stock, the formation of a group or otherwise, or shall have
been granted an option, right or warrant, conditional or otherwise, to
acquire beneficial ownership of more than 14.9% of any class or series of
capital stock of the Company (including the Shares); or (ii) any person or
group shall have entered into a definitive agreement or agreement in
principle with the Company with respect to a merger, consolidation or other
business combination with the Company; or
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<PAGE> 34
(f) the Company Board shall have withdrawn, or modified or changed in
a manner adverse to Parent or the Purchaser (including by amendment of the
Schedule 14D-9) its recommendation of the Offer, the Merger Agreement, or
the Merger, or recommended another proposal or offer, or shall have
resolved to do any of the foregoing;
which in the sole judgment of Parent or the Purchaser, in any such case, and
regardless of the circumstances (including any action or inaction by Parent or
the Purchaser giving rise to such condition) makes it inadvisable to proceed
with the Offer or with such acceptance for payment or payments.
The foregoing conditions are for the sole benefit of the Purchaser and
Parent and may be waived by Parent or the Purchaser, in whole or in part at any
time and from time to time in the sole discretion of Parent or the Purchaser.
The failure by Parent or the Purchaser at any time to exercise any of the
foregoing rights shall not be deemed a waiver of any such right and each such
right shall be deemed an ongoing right which may be asserted at any time and
from time to time.
15. CERTAIN LEGAL MATTERS; REGULATORY APPROVALS.
General. Except as otherwise disclosed herein, based on information
provided by the Company, none of the Company, the Purchaser or Parent is aware
of (i) any license or regulatory permit that appears to be material to the
business of the Company and its subsidiaries, taken as a whole, that might be
adversely affected by the acquisition of Shares by the Purchaser pursuant to the
Offer or the Merger or (ii) any approval or other action by any governmental,
administrative or regulatory agency or authority, domestic or foreign that would
be required for the acquisition or ownership of Shares by the Purchaser as
contemplated herein. Should any such approval or other action be required, the
Purchaser and Parent currently contemplate that such approval or action would be
sought. While, except as otherwise described in this Offer to Purchase, the
Purchaser does not currently intend to delay the acceptance for payment of
Shares tendered pursuant to the Offer pending the outcome of any such matter,
there can be no assurance that any such approval or action, if needed, would be
obtained or would be obtained without substantial conditions or that adverse
consequences might not result to the business of the Company or the Purchaser or
that certain parts of the businesses of the Company or the Purchaser might not
have to be disposed of in the event that such approvals were not obtained or any
other actions were not taken. The Purchaser's obligation under the Offer to
accept for payment and pay for Shares is subject to certain conditions. See
Section 14.
Antitrust Compliance. Under the HSR Act, and the rules that have been
promulgated thereunder by the Federal Trade Commission (the "FTC"), certain
acquisition transactions may not be consummated unless certain information has
been furnished to the Antitrust Division of the Department of Justice (the
"Antitrust Division") and the FTC and certain waiting period requirements have
been satisfied.
A Notification and Report Form with respect to the Offer is expected to be
filed under the HSR Act on or about August 17, 1998, and if filed on such date,
the waiting period with respect to the Offer under the HSR Act will expire at
11:59 p.m., New York City time, on August 31, 1998. Before such time, however,
either the FTC or the Antitrust Division may extend the waiting period by
requesting additional information or material from the Purchaser. If such
request is made, the waiting period will expire at 11:59 p.m., New York City
time, on the tenth calendar day after the Purchaser has substantially complied
with such request. Thereafter, the waiting period may be extended only by court
order or with the Purchaser's consent.
The FTC and the Antitrust Division frequently scrutinize the legality under
the antitrust laws of transactions such as the proposed acquisition of Shares by
the Purchaser pursuant to the Offer. At any time before or after the purchase of
Shares pursuant to the Offer by the Purchaser, the FTC or the Antitrust Division
could take such action under the antitrust laws as it deems necessary or
desirable in the public interest, including seeking to enjoin the purchase of
Shares pursuant to the Offer or seeking the divestiture of Shares purchased by
the Purchaser or the divestiture of substantial assets of the Purchaser, the
Company or their respective affiliates. Private parties and state attorneys
general may also bring legal action under federal or state antitrust laws under
certain circumstances. Based upon an examination of information available to the
Purchaser relating to the businesses in which the Purchaser, the Company and
their respective affiliates are engaged, the Purchaser believes that the Offer
will not violate the antitrust laws. Nevertheless, there can be no assurance
that a challenge to the Offer on antitrust grounds will not be made or, if such
a challenge is made,
32
<PAGE> 35
what the result would be. See Section 14 for certain conditions to the Offer,
including conditions with respect to litigation.
State Takeover Statutes. The Company is incorporated under the laws of the
State of Texas. In general, Article 13.03 of the TBCA prohibits a Texas
corporation such as the Company from engaging in a "Business Combination"
(defined as a variety of transactions, including mergers, as set forth below)
with an "Affiliated Shareholder" (defined generally as a person that is the
beneficial owner of 20% or more of a corporation's outstanding voting stock) for
a period of three years following the date that such person became an Affiliated
Shareholder unless (a) prior to the date such person became an Affiliated
Shareholder, the board of directors of the corporation approved either the
Business Combination or the transaction that resulted in the shareholder
becoming an Affiliated Shareholder or (b) not less than six months after, the
date such person became an Affiliated Shareholder, the Business Combination is
approved, at a meeting of shareholders and not by written consent, duly called
for that purpose, by the affirmative vote of the holders of at least 66 2/3% of
the outstanding voting stock of the corporation not owned by the Affiliated
Shareholder (or the affiliates or associates of the Affiliated Shareholder).
Because the Company Board has approved the Offer and the Merger, Article 13.03
of the TBCA is inapplicable to the Offer and the Merger.
A number of other states have adopted laws and regulations applicable to
attempts to acquire securities of corporations which are incorporated, or have
substantial assets, shareholders, principal executive offices or principal
places of business, or whose business operations otherwise have substantial
economic effects, in such states. In 1982, in Edgar v. MITE Corp., the Supreme
Court of the United States invalidated on constitutional grounds the Illinois
Business Takeover Statute, which, as a matter of state securities law, made
takeovers of corporations meeting certain requirements more difficult. However,
in 1987 in CTS Corp. v. Dynamics Corp. of America, the Supreme Court held that
the State of Indiana may, as a matter of corporate law, and, in particular, with
respect to those aspects of corporate law concerning corporate governance,
constitutionally disqualify a potential acquirer from voting on the affairs of a
target corporation without the prior approval of the remaining shareholders. The
state law before the Supreme Court was by its terms applicable only to
corporations that had a substantial number of shareholders in the state and were
incorporated there.
The Company, directly or through subsidiaries, conducts business in a
number of states throughout the United States, some of which have enacted
takeover laws. The Purchaser does not know whether any of these laws will, by
their terms, apply to the Offer and the Merger and has not complied with any
such laws. Should any person seek to apply any state takeover law, the Purchaser
will take such action as then appears desirable, which may include challenging
the validity or applicability of any such statute in appropriate court
proceedings. In the event it is asserted that one or more state takeover laws is
applicable to the Offer and the Merger and an appropriate court does not
determine that it is inapplicable or invalid as applied to the Offer, the
Purchaser might be required to file certain information with, or receive
approvals from, the relevant state authorities. In addition, if enjoined, the
Purchaser might be unable to accept for payment any Shares tendered pursuant to
the Offer or be delayed in continuing or consummating the Offer. In such case,
the Purchaser may not be obligated to accept for payment any Shares tendered.
See Section 14.
Certain Litigation. On August 5, 1998, the Purchaser filed a complaint
(the "Complaint") against the Company and the current members of the Company
Board in the United States District Court for the Western District of Texas,
Midlands/Odessa Division. The Complaint seeks among other things, declaratory
and injunctive relief declaring the "dead-hand provision" of the Rights
Agreement illegal under Texas law and enjoining the Company Board from amending
such provision and enjoining the Company from taking any action intended to or
that would thwart or otherwise interfere with the then-announced offer to
purchase Shares at $14.00 per Share and the then-announced intention to solicit
authorizations to call a special meeting of shareholders and to solicit proxies
therefor. The Complaint also seeks to enjoin the Company Board from taking any
action in furtherance of the Company's acquisition of Hellums. Pursuant to the
Merger Agreement, the parties have agreed to dismiss the Complaint and all
counterclaims asserted thereto, with prejudice, immediately prior to the time
Parent's designees constitute a majority of the Company Board following
consummation of the Offer.
16. FEES AND EXPENSES. Except as set forth below, the Purchaser will pay
no fees or commissions to any broker, dealer or other person for soliciting
tenders of Shares pursuant to the Offer.
33
<PAGE> 36
Bear Stearns is acting as Dealer Manager in connection with the Offer and
as financial advisor to Parent in connection with the proposed acquisition of
the Company. In connection with the Offer, Parent has agreed to pay Bear Stearns
for its services $350,000 upon the commencement of the Offer and 0.8750% of the
Company's Enterprise Value (as defined in the engagement letter between Parent
and Bear Stearns (the "Engagement Letter")) if a Transaction (as defined in the
Engagement Letter) is consummated following commencement of the Offer. Parent
has also agreed to pay Bear Stearns 20% of any profits Parent realizes upon the
sale of Shares beneficially owned by Parent or the Purchaser in the event a
Transaction is not consummated. Parent has also agreed to reimburse Bear Stearns
(in its capacity as Dealer Manager and financial advisor) for its reasonable
out-of-pocket expenses, including the fees and expenses of its legal counsel,
incurred in connection with its engagement, and to indemnify Bear Stearns and
certain related persons against certain liabilities and certain expenses in
connection with their engagement, including certain liabilities under the
federal securities laws. Bear Stearns renders various investment banking and
other advisory services to Parent and its affiliates and is expected to continue
to render such services, for which it has received and will continue to receive
customary compensation from Parent and its affiliates.
Dain Rauscher Wessels ("Dain Rauscher") is providing financial advisory
services to Parent in connection with Parent's proposed acquisition of the
Company. Parent has paid Dain Rauscher a retainer fee of $100,000 and has agreed
to pay Dain Rauscher $500,000 if a Transaction (as defined in the engagement
letter between Parent and Dain Rauscher) is consummated with the Company. Parent
has agreed to reimburse Dain Rauscher for its reasonable out-of-pocket expenses.
Parent has also agreed to indemnify Dain Rauscher and certain related persons
against certain liabilities and certain expenses in connection with their
engagement, including certain liabilities under the federal securities laws.
Dain Rauscher renders various investment banking and other advisory services to
Parent and its affiliates and is expected to continue to render such services,
for which it has received and will continue to receive customary compensation
from Parent and its affiliates.
Parent has retained Innisfree M&A Incorporated ("Innisfree") for advisory
services in connection with the Offer, for which Innisfree will receive
reasonable and customary compensation, together with reimbursement for its
reasonable out-of-pocket expenses. Parent has also agreed to indemnify Innisfree
against certain liabilities and expenses, including liabilities and expenses
under federal securities laws.
Abernathy McGregor Frank will perform certain public relations consulting
services for Parent in connection with the Offer, for which it will receive
reasonable and customary compensation.
In addition, The Bank of New York has been retained as the Depositary. The
Depositary has not been retained to make solicitations or recommendations in its
role as Depositary. The Depositary will receive reasonable and customary
compensation for its services, will be reimbursed for certain reasonable out-of-
pocket expenses and will be indemnified against certain liabilities and expenses
in connection therewith. Brokers, dealers, commercial banks and trust companies
will be reimbursed by the Purchaser for customary mailing and handling expenses
incurred by them in forwarding offering material to their customers.
17. MISCELLANEOUS. The Purchaser is not aware of any jurisdiction where
the making of the Offer is prohibited by any administrative or judicial action
pursuant to any valid state statute. If the Purchaser becomes aware of any valid
state statute prohibiting the making of the Offer or the acceptance of the
Shares pursuant thereto, the Purchaser will make a good faith effort to comply
with such state statute. If, after such good faith effort, the Purchaser cannot
comply with any such state statute, the Offer will not be made to (nor will
tenders be accepted from or on behalf of) the holders of Shares in such state.
In any jurisdiction where the securities, blue sky or other laws require the
Offer to be made by a licensed broker or dealer, the Offer shall be deemed to be
made on behalf of the Purchaser by the Dealer Manager or one or more registered
brokers or dealers which are licensed under the laws of such jurisdiction.
NO PERSON HAS BEEN AUTHORIZED TO GIVE ANY INFORMATION OR MAKE ANY
REPRESENTATION ON BEHALF OF PARENT OR THE PURCHASER NOT CONTAINED IN THIS OFFER
TO PURCHASE OR IN THE LETTER OF TRANSMITTAL, AND IF GIVEN OR MADE, SUCH
INFORMATION OR REPRESENTATION MUST NOT BE RELIED UPON AS HAVING BEEN AUTHORIZED.
Parent and the Purchaser have filed with the Commission the Schedule 14D-1,
together with exhibits, pursuant to Rule 14d-3 of the General Rules and
Regulations under the Exchange Act, furnishing certain
34
<PAGE> 37
additional information with respect to the Offer and may file amendments
thereto. The Schedule 14D-1 and any amendments thereto, including exhibits, may
be inspected at, and copies may be obtained from, the same places and in the
same manner as set forth in Section 7 (except that they will not be available at
the regional offices of the Commission).
Midland Acquisition Corp.
August 17, 1998
35
<PAGE> 38
SCHEDULE I
INFORMATION CONCERNING THE DIRECTORS AND EXECUTIVE
OFFICERS OF PARENT AND THE PURCHASER
Directors and Executive Officers of Parent and the Purchaser. Set forth
below is the name, current business address, citizenship and the present
principal occupation or employment and material occupations, positions, offices
or employments for the past five years of each director and executive officer of
Parent and the Purchaser. The principal address of Parent and the Purchaser and,
unless otherwise indicated below, the current business address for each
individual listed below is Two Tower Center, 20th Floor, East Brunswick, New
Jersey 08816. Directors of Parent are identified by an asterisk. Unless
otherwise indicated, each such person is a citizen of the United States and each
occupation set forth opposite the individual's name refers to employment with
Parent.
DIRECTORS AND EXECUTIVE OFFICERS OF PARENT
<TABLE>
<CAPTION>
NAME AND CURRENT BUSINESS PRESENT PRINCIPAL OCCUPATION OR EMPLOYMENT; MATERIAL
ADDRESS POSITIONS HELD DURING THE PAST FIVE YEARS
- ------------------------- ----------------------------------------------------
<S> <C>
Francis D. John* Chairman of the Board since August 1996 and Chief Executive
Officer and President since October 1989; Chief Financial
Officer from October 1989 through July 1997; Director of the
Purchaser.
David J. Breazzano* Principal, DDJ Capital Management, LLC, an investment
management firm, since 1996; Vice President and Portfolio
Manager at Fidelity Investments from 1990 to 1996; Director
of Waste Systems International since June 1997.
Kevin P. Collins* Managing Member of the Old Hill Company, L.L.C. since 1997;
principal of JHP Enterprises, Ltd., a provider of financial
advisory services, from 1992 to 1997; Director of the
Company from September 1994 to March 1996.
William Manly* Retired; Executive Vice President of Cabot Corporation from
1978 through 1986; Director of Metallamics, Inc. and Forge
Performance Products, Inc.
W. Phillip Marcum* President and Chief Executive Officer of Marcum Natural Gas
Services, Inc. since 1991; Director of WellTech, Inc. from
1994 through 1996 (acting Chairman from October 1995 through
March 1996).
Morton Wolkowitz* Private investor since 1989.
Kenneth V. Huseman Executive Vice President since March 1996 and Chief
Operating Officer since August 1996; Mid-Continent Regional
President of WellTech, Inc. from August 1994 to March 1996
and Vice President and Mid-Continent Regional Manager of
WellTech, Inc. from April 1993 to August 1994; Vice
President and Treasurer of the Purchaser.
Stephen E. McGregor Executive Vice President and Chief Financial Officer since
July 1997; Senior Advisor to BT Wolfensohn from July 1995 to
July 1997; President and Member of Pacific Century Group
L.L.C. from September 1993 until July 1995; President and
Chief Executive Officer of the Purchaser.
Danny R. Evatt Vice President and Chief Accounting Officer since July 1995
and the Treasurer since July 1990.
</TABLE>
I-1
<PAGE> 39
DIRECTORS AND EXECUTIVE OFFICERS OF THE PURCHASER
<TABLE>
<CAPTION>
NAME AND CURRENT BUSINESS PRESENT PRINCIPAL OCCUPATION OR EMPLOYMENT; MATERIAL
ADDRESS POSITIONS HELD DURING THE PAST FIVE YEARS
- ------------------------- ----------------------------------------------------
<S> <C>
Stephen E. McGregor President and Chief Executive Officer of the Purchaser;
Executive Vice President and Chief Financial Officer of
Parent since July 1997; Senior Advisor to BT Wolfensohn from
July 1995 to July 1997; President and Member of Pacific
Century Group L.L.C. from September 1993 until July 1995.
Francis D. John Director of the Purchaser; Chairman of the Board of Parent
since August 1996 and Chief Executive Officer and President
since October 1989; Chief Financial Officer of Parent from
October 1989 through July 1997.
Kenneth V. Huseman Vice President and Treasurer of the Purchaser; Executive
Vice President of Parent since March 1996 and Chief
Operating Officer since August 1996; Mid-Continent Regional
President of WellTech, Inc. from August 1994 to March 1996
and Vice President and Mid-Continent Regional Manager of
WellTech, Inc. from April 1993 to August 1994.
</TABLE>
BENEFICIAL OWNERSHIP OF SHARES BY DIRECTORS AND
EXECUTIVE OFFICERS OF PARENT AND THE PURCHASER
<TABLE>
<CAPTION>
SHARES
BENEFICIALLY
NAME OWNED
- ---- ------------
<S> <C>
Kevin P. Collins, Director of Parent........................ 9,354
W. Phillip Marcum, Director of Parent....................... 6,054
</TABLE>
I-2
<PAGE> 40
SCHEDULE II
TRANSACTIONS IN SHARES DURING THE PAST 60 DAYS
BY PARENT AND THE PURCHASER (1)
<TABLE>
<CAPTION>
TRANSACTION DATE SHARES ACQUIRED PRICE PER SHARE (2)
- ---------------- --------------- -------------------
<S> <C> <C>
7/30/98(3) 100 $ 13.63
7/31/98(3) 100 $ 13.63
7/31/98(4) 100 $ 13.69
</TABLE>
- ---------------
(1) All transactions were effected through open market purchases by Parent or
the Purchaser, as designated in this Schedule II, other than 15,000 Shares
which were transferred from Parent to the Purchaser as a capital
contribution on August 3, 1998.
(2) All prices are exclusive of commissions.
(3) Transaction effected by Parent.
(4) Transaction effected by the Purchaser.
II-1
<PAGE> 41
Facsimile copies of the Letter of Transmittal, properly completed and duly
signed, will be accepted. The Letter of Transmittal, certificates for the Shares
and any other required documents should be sent by each shareholder of the
Company or his broker, dealer, commercial bank, trust company or other nominee
to the Depositary as follows:
The Depositary for the Offer is:
THE BANK OF NEW YORK
<TABLE>
<S> <C> <C>
By Mail: Facsimile Transmission: By Hand or Overnight Courier:
(for Eligible Institutions
Only)
(212) 815-6213
Tender & Exchange Department Tender & Exchange Department
P.O. Box 11248 101 Barclay Street
Church Street Station Receive and Deliver Window
New York, New York 10286-1248 New York, New York 10286
For Confirmation Telephone:
(800) 507-9357
</TABLE>
Any questions or requests for assistance or additional copies of the Offer
to Purchase, the Letter of Transmittal and the Notice of Guaranteed Delivery may
be directed to the Information Agent or the Dealer Manager at their respective
telephone numbers and locations listed below. You may also contact your broker,
dealer, commercial bank or trust company or other nominee for assistance
concerning the Offer.
The Information Agent for the Offer is:
INNISFREE M&A INCORPORATED
501 Madison Avenue
20th Floor
New York, New York 10022
Call Toll Free (888) 750-5834
or
Banks and Brokers Call: (212) 750-5833 (Collect)
The Dealer Manager for the Offer is:
BEAR, STEARNS & CO. INC.
245 Park Avenue
New York, New York 10167
(888) 933-8901 (Toll Free)
<PAGE> 1
EXHIBIT (a)(2)
LETTER OF TRANSMITTAL
TO TENDER SHARES OF COMMON STOCK
(INCLUDING THE ASSOCIATED COMMON STOCK PURCHASE RIGHTS)
OF
DAWSON PRODUCTION SERVICES, INC.
at
$17.50 NET PER SHARE IN CASH
PURSUANT TO THE OFFER TO PURCHASE DATED AUGUST 17, 1998
BY
MIDLAND ACQUISITION CORP.
- --------------------------------------------------------------------------------
THE OFFER AND WITHDRAWAL RIGHTS WILL EXPIRE AT 12:00 MIDNIGHT, NEW YORK
CITY TIME, ON MONDAY, SEPTEMBER 14, 1998 UNLESS THE OFFER IS EXTENDED.
- --------------------------------------------------------------------------------
The Depositary for the Offer is:
THE BANK OF NEW YORK
<TABLE>
<S> <C> <C>
By Mail: By Facsimile Transmission: By Hand or By Overnight
Tenders & Exchange Department (for Eligible Institutions Courier:
P.O. Box 11248 Only) Tenders & Exchange Department
Church Street Station (212) 815-6213 Receive and Deliver Window
New York, New York 10286-1248 101 Barclay Street
New York, New York 10286
For Confirmation Telephone:
(800) 507-9357
------------------
</TABLE>
DELIVERY OF THIS LETTER OF TRANSMITTAL TO AN ADDRESS OTHER THAN AS SET
FORTH ABOVE OR TRANSMISSION OF INSTRUCTIONS VIA A FACSIMILE TO A NUMBER
OTHER THAN AS SET FORTH ABOVE WILL NOT CONSTITUTE A VALID DELIVERY TO
THE DEPOSITARY.
THE INSTRUCTIONS ACCOMPANYING THIS LETTER OF TRANSMITTAL SHOULD BE
READ CAREFULLY BEFORE THIS LETTER OF TRANSMITTAL IS COMPLETED.
<PAGE> 2
This Letter of Transmittal is to be used either if certificates evidencing
Shares (as defined below) are to be forwarded herewith or, unless an Agent's
Message (as defined in the Offer to Purchase, dated August 17, 1998 (the "Offer
to Purchase")) is utilized, if delivery of Shares is to be made by book-entry
transfer to the account maintained by The Bank of New York (the "Depositary") at
The Depository Trust Company (the "Book-Entry Transfer Facility") pursuant to
the procedures set forth in Section 3 of the Offer to Purchase.
Holders whose certificates for Shares are not immediately available or who
cannot deliver confirmation of the book-entry transfer of their Shares into the
Depositary's account at the Book-Entry Transfer Facility ("Book-Entry
Confirmation") and all other documents required hereby to the Depositary on or
prior to the Expiration Date (as defined in the Offer to Purchase) must tender
their Shares according to the guaranteed delivery procedures set forth in
Section 3 of the Offer to Purchase. See Instruction 2 of this Letter of
Transmittal. Delivery of documents to the Book-Entry Transfer Facility does not
constitute delivery to the Depositary.
[ ] CHECK HERE IF TENDERED SHARES ARE BEING DELIVERED BY BOOK-ENTRY TRANSFER
MADE TO THE ACCOUNT MAINTAINED BY THE DEPOSITARY WITH THE BOOK-ENTRY
TRANSFER FACILITY AND COMPLETE THE FOLLOWING (ONLY PARTICIPANTS IN A
BOOK-ENTRY TRANSFER FACILITY MAY DELIVER SHARES BY BOOK-ENTRY TRANSFER):
Name(s) of Tendering Institution:
-----------------------------------------------
Account Number:
-----------------------------------------------------------------
Transaction Code Number:
--------------------------------------------------------
[ ] CHECK HERE IF TENDERED SHARES ARE BEING DELIVERED PURSUANT TO A NOTICE OF
GUARANTEED DELIVERY (AS DEFINED IN THE OFFER TO PURCHASE) PREVIOUSLY SENT TO
THE DEPOSITARY AND COMPLETE THE FOLLOWING:
Name(s) of Registered Owner(s):
-------------------------------------------------
Window Ticket Number (if any):
--------------------------------------------------
Date of Execution of Notice of Guaranteed Delivery:
-----------------------------
Name of Institution that Guaranteed Delivery:
-----------------------------------
If Delivered by Book-Entry Transfer:
Account Number:
-----------------------------------------------------------------
Transaction Code Number:
--------------------------------------------------------
2
<PAGE> 3
<TABLE>
<S> <C> <C> <C>
- ------------------------------------------------------------------------------------------------------------
DESCRIPTION OF SHARES TENDERED
- ------------------------------------------------------------------------------------------------------------
NAME(S) AND ADDRESS(ES) OF REGISTERED HOLDER(S) SHARE CERTIFICATE(S) TENDERED
(PLEASE FILL IN, IF BLANK) (ATTACH ADDITIONAL LIST IF NECESSARY)
- ------------------------------------------------------------------------------------------------------------
TOTAL NUMBER OF
SHARES NUMBER
CERTIFICATE REPRESENTED BY OF SHARES
NUMBER(S)* CERTIFICATE(S) TENDERED**
------------------------------------------------------
------------------------------------------------------
------------------------------------------------------
------------------------------------------------------
------------------------------------------------------
TOTAL SHARES
- ------------------------------------------------------------------------------------------------------------
* Need not be completed by shareholders tendering by book-entry transfer.
** Unless otherwise indicated, it will be assumed that all Shares being delivered to the Depositary are
being tendered. See Instruction 4.
- ------------------------------------------------------------------------------------------------------------
</TABLE>
The names and addresses of the registered holders should be printed, if not
already printed above, exactly as they appear on the certificates representing
Shares tendered hereby. The certificates and number of Shares that the
undersigned wishes to tender should be indicated in the appropriate boxes.
NOTE: SIGNATURES MUST BE PROVIDED BELOW.
PLEASE READ CAREFULLY THE ACCOMPANYING INSTRUCTIONS.
3
<PAGE> 4
Ladies and Gentlemen:
The undersigned hereby tenders to Midland Acquisition Corp., a New Jersey
corporation (the "Purchaser"), the above-described shares of common stock, par
value $.01 per share (the "Common Stock"), of Dawson Production Services, Inc.,
a Texas corporation (the "Company"), including the associated common stock
purchase rights (the "Rights" and, together with the Common Stock, the "Shares")
issued pursuant to the Rights Agreement, dated as of September 11, 1997, as
amended, between the Company and Harris Trust Company of New York, as Rights
Agent (the "Rights Agreement"), pursuant to the Purchaser's offer to purchase
all outstanding Shares at a price of $17.50 per Share, net to the seller in
cash, without interest, upon the terms and subject to the conditions set forth
in the Offer to Purchase, receipt of which is hereby acknowledged, and in this
related Letter of Transmittal (which, together with the Offer to Purchase, each
as amended or supplemented from time to time, constitute the "Offer"). The
Purchaser reserves the right to transfer or assign, in whole or in part from
time to time, to one or more of its affiliates the right to purchase Shares
tendered pursuant to the Offer.
Subject to, and effective upon, acceptance for payment of the Shares
tendered herewith in accordance with the terms and subject to the conditions of
the Offer, the undersigned hereby sells, assigns, and transfers to, or upon the
order of, the Purchaser all right, title and interest in and to all the Shares
that are being tendered hereby (and any and all other Shares, rights or other
securities issued or issuable in respect thereof on or after August 11, 1998)
and irrevocably constitutes and appoints the Depositary the true and lawful
agent and attorney-in-fact of the undersigned with respect to such Shares (and
any such other Shares, rights or securities) with full power of substitution
(such power of attorney being deemed to be an irrevocable power coupled with an
interest), to (a) deliver certificates for such Shares (and any such other
Shares, rights or securities), or transfer ownership of such Shares (and any
such other Shares, rights or securities) on the account books maintained by the
Book-Entry Transfer Facility, together in either such case with all accompanying
evidences of transfer and authenticity, to, or upon the order of, the Purchaser
upon receipt by the Depositary, as the undersigned's agent, of the purchase
price (adjusted, if appropriate, as provided in the Offer to Purchase), (b)
present such Shares (and any such other Shares, rights or securities) for
transfer on the books of the Company and (c) receive all benefits and otherwise
exercise all rights of beneficial ownership of such Shares (and any other such
Shares, rights or securities), all in accordance with the terms of the Offer.
The undersigned hereby irrevocably appoints Francis D. John, Stephen E.
McGregor and Jack D. Loftis, Jr. and each of them, the attorneys-in-fact and
proxies of the undersigned, each with full power of substitution to the full
extent of such shareholder's rights with respect to tendered Shares (and any and
all other Shares, rights or securities issued or issuable in respect thereof on
or after August 11, 1998), to vote in such manner as each such attorney and
proxy or his substitute shall in his sole discretion deem proper, and otherwise
act with respect to all the Shares tendered hereby which have been accepted for
payment by the Purchaser prior to the time of such vote which the undersigned is
entitled to vote at any meeting of shareholders (whether annual or special and
whether or not an adjourned meeting) of the Company, or otherwise. This proxy is
coupled with an interest in the Company and in the Shares and is irrevocable and
is granted in consideration of, and is effective when, if and to the extent that
the Purchaser accepts such Shares for payment pursuant to the Offer. Such
acceptance for payment shall revoke, without further action, all prior proxies
granted by the undersigned at any time with respect to such Shares (and any such
other Shares, rights or other securities) and no subsequent proxies will be
given (and if given will be deemed not to be effective) with respect thereto by
the undersigned. The undersigned acknowledges that in order for Shares to be
deemed validly tendered, immediately upon the acceptance for payment of such
Shares, the Purchaser or the Purchaser's designee must be able to exercise full
voting and all other rights which inure to a record and beneficial holder with
respect to such Shares.
The undersigned hereby represents and warrants that the undersigned has
full power and authority to tender, sell, assign and transfer the Shares
tendered hereby (and any and all other Shares or other securities issued or
issuable in respect thereof on or after August 11, 1998), and that, when the
same are accepted for payment by the Purchaser, the Purchaser will acquire good,
marketable and unencumbered title thereto, free and clear of all liens,
restrictions, charges and encumbrances and the same will not be subject to any
adverse claim. The undersigned, upon request, will execute and deliver any
additional documents deemed by the
4
<PAGE> 5
Depositary or the Purchaser to be necessary or desirable to complete or confirm
the sale, assignment and transfer of the Shares tendered hereby (and any and all
such other Shares, rights or other securities).
All authority herein conferred or agreed to be conferred in this Letter of
Transmittal shall not be affected by, and shall survive, the death or incapacity
of the undersigned, and any obligation of the undersigned hereunder shall be
binding upon the successors, assigns, heirs, executors, administrators, trustees
in bankruptcy, personal and legal representatives of the undersigned. Except as
stated in the Offer to Purchase, this tender is irrevocable, provided that
Shares tendered pursuant to the Offer may be withdrawn at any time prior to
their acceptance for payment.
The undersigned understands that tenders of Shares pursuant to any one of
the procedures described in Section 3 of the Offer to Purchase and the
instructions hereto will constitute a binding agreement between the undersigned
and the Purchaser upon the terms and subject to the conditions of the Offer. The
undersigned recognizes that under certain circumstances set forth in the Offer
to Purchase, the Purchaser may not be required to accept for payment any of the
Shares tendered hereby.
5
<PAGE> 6
Unless otherwise indicated herein under "Special Payment Instructions,"
please issue the check for the purchase price and/or return any certificates for
Shares not tendered or accepted for payment in the name(s) of the undersigned.
Similarly, unless otherwise indicated under "Special Delivery Instructions,"
please mail the check for the purchase price and/or return any certificates for
Shares not tendered or accepted for payment (and accompanying documents, as
appropriate) to the undersigned at the address shown below the undersigned's
signature. In the event that both the Special Delivery Instructions and the
Special Payment Instructions are completed, please issue the check for the
purchase price and/or return any certificates for Shares not tendered or
accepted for payment in the name of, and deliver such check and/or return such
certificates to the person or persons so indicated. Shareholders delivering
Shares by book-entry transfer may request that any Shares not accepted for
payment be returned by crediting such account maintained at the Book-Entry
Transfer Facility as such shareholder may designate by making an appropriate
entry under "Special Payment Instructions." The undersigned recognizes that the
Purchaser has no obligation pursuant to the Special Payment Instructions to
transfer any Shares from the name of the registered holder thereof if the
Purchaser does not accept for payment any of the Shares so tendered.
- --------------------------------------------------------------------------------
SPECIAL PAYMENT INSTRUCTIONS
(SEE INSTRUCTIONS 1, 5, 6 AND 7 OF THIS
LETTER OF TRANSMITTAL)
To be completed ONLY if the check for the purchase price of Shares purchased or
certificates evidencing Shares not tendered or not purchased are to be issued in
the name of someone other than the undersigned.
Issue [ ] check [ ] certificates to:
Name
----------------------------------------------------------------------------
(Please Print)
Address
-------------------------------------------------------------------------
- --------------------------------------------------------------------------------
(Zip Code)
- --------------------------------------------------------------------------------
(Taxpayer Identification or Social Security Number)
(Also complete Substitute Form W-9 below)
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
SPECIAL DELIVERY INSTRUCTIONS
(SEE INSTRUCTIONS 1 AND 7 OF THIS
LETTER OF TRANSMITTAL)
To be completed ONLY if the check for the purchase price of Shares purchased or
certificates evidencing Shares not tendered or not purchased are to be mailed to
someone other than shown under "Description of Shares Tendered."
Mail [ ] check [ ] certificates to:
Name
----------------------------------------------------------------------------
(Please Print)
Address
-------------------------------------------------------------------------
- --------------------------------------------------------------------------------
(Zip Code)
- --------------------------------------------------------------------------------
(Taxpayer Identification or Social Security Number)
(Also complete Substitute Form W-9 below)
- --------------------------------------------------------------------------------
6
<PAGE> 7
- --------------------------------------------------------------------------------
SIGN HERE
(COMPLETE SUBSTITUTE FORM W-9 ON REVERSE)
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
(SIGNATURE(S) OF HOLDER(S))
Dated:__________________________________, 1998
(Must be signed by registered holder(s) exactly as name(s) appear(s) on
share certificate(s) or on a security position listing or by person(s)
authorized to become registered holder(s) by certificates and documents
transmitted herewith. If signature is by trustees, executors, administrators,
guardians, attorneys-in-fact, officers of corporations or others acting in a
fiduciary or representative capacity, please provide the following information.
See Instruction 5 of this Letter of Transmittal.)
Name(s):
------------------------------------------------------------------------
- --------------------------------------------------------------------------------
(PLEASE PRINT)
Capacity (full title):
----------------------------------------------------------
Address(es):
--------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
(INCLUDE ZIP CODE)
Area Code and Telephone Number:
-------------------------------------------------
Taxpayer Identification or Social Security No.:
---------------------------------
(COMPLETE SUBSTITUTE FORM W-9 ON REVERSE)
GUARANTEE OF SIGNATURE(S)
(SEE INSTRUCTIONS 1 AND 5 OF THIS LETTER OF TRANSMITTAL)
FOR USE BY FINANCIAL INSTITUTIONS
Authorized Signature:
-----------------------------------------------------------
Name:
---------------------------------------------------------------------------
(PLEASE PRINT)
Title:
--------------------------------------------------------------------------
Name of Firm:
-------------------------------------------------------------------
Address:
------------------------------------------------------------------------
(INCLUDE ZIP CODE)
Area Code and Telephone Number:
-------------------------------------------------
Dated:__________________________________, 1998
7
<PAGE> 8
INSTRUCTIONS
FORMING PART OF THE TERMS AND CONDITIONS OF THE OFFER
1. Guarantee of Signatures. No signature guarantee on this Letter of
Transmittal is required (i) if this Letter of Transmittal is signed by the
registered holder of the Shares (which term, for purposes of this document,
shall include any participant in the Book-Entry Transfer Facility whose name
appears on a security position listing as the owner of Shares) tendered
herewith, unless such holder has completed either the box entitled "Special
Delivery Instructions" or the box entitled "Special Payment Instructions" in
this Letter of Transmittal or (ii) if such Shares are tendered for the account
of a firm that is a bank, broker, dealer, credit union, savings association or
other entity which is a member in good standing of the Security Transfer Agents
Medallion Program (each of the foregoing being referred to as an "Eligible
Institution"). In all other cases, all signatures on this Letter of Transmittal
must be guaranteed by an Eligible Institution. See Instruction 5 of this Letter
of Transmittal.
2. Delivery of Letter of Transmittal and Certificates; Guaranteed Delivery
Procedures. This Letter of Transmittal is to be completed by shareholders
either if certificates for Shares are to be forwarded herewith or if a tender of
Shares is to be made pursuant to the procedures for delivery by book-entry
transfer set forth in Section 3 of the Offer to Purchase. For Shares to be
validly tendered pursuant to the Offer, (i) a properly completed and duly
executed Letter of Transmittal (or facsimile thereof), with any required
signature guarantees, or an Agent's Message (as defined in the Offer to
Purchase) in the case of a book-entry delivery, and any other documents required
by this Letter of Transmittal, must be received by the Depositary at one of the
Depositary's addresses set forth herein and either certificates or a timely
Book-Entry Confirmation for tendered Shares must be received by the Depositary
at one of such addresses, in each case prior to the Expiration Date (as defined
in the Offer to Purchase), or (ii) the tendering shareholder must comply with
the guaranteed delivery procedures set forth below.
Shareholders whose certificates for Shares are not immediately available or
who cannot deliver their certificates and all other required documents to the
Depositary or complete the procedures for book-entry transfer prior to the
Expiration Date may tender their Shares by properly completing and duly
executing the Notice of Guaranteed Delivery pursuant to the guaranteed delivery
procedures set forth in Section 3 of the Offer to Purchase. Pursuant to such
procedures, (i) such tender must be made by or through an Eligible Institution,
(ii) a properly completed and duly executed Notice of Guaranteed Delivery
provided by the Purchaser (or facsimile thereof) must be received by the
Depositary prior to the Expiration Date and (iii) the certificates for all
physically tendered Shares, or a Book-Entry Confirmation with respect to all
tendered Shares, together with this properly completed and duly executed Letter
of Transmittal (or facsimile thereof) with any required signature guarantees,
and any other documents required by this Letter of Transmittal, must be received
by the Depositary within three trading days after the date of execution of such
Notice of Guaranteed Delivery, all as provided in Section 3 of the Offer to
Purchase. A "trading day" is any day on which the New York Stock Exchange, Inc.
is open for business.
The shareholder understands that tenders of Shares pursuant to any one of
the procedures described in "Procedures for Tendering Shares" -- Section 3 of
the Offer to Purchase and in the instructions hereto will constitute a binding
agreement between the shareholder and the Purchaser upon the terms and
conditions of the Offer.
THE METHOD OF DELIVERY OF THIS LETTER OF TRANSMITTAL, SHARE CERTIFICATES
AND ALL OTHER REQUIRED DOCUMENTS, INCLUDING DELIVERY THROUGH THE BOOK-ENTRY
TRANSFER FACILITY, IS AT THE OPTION AND RISK OF THE TENDERING SHAREHOLDER, AND
THE DELIVERY WILL BE DEEMED MADE ONLY WHEN ACTUALLY RECEIVED BY THE DEPOSITARY.
IF DELIVERY IS BY MAIL, PROPERLY INSURED REGISTERED MAIL WITH RETURN RECEIPT
REQUESTED IS RECOMMENDED. IN ALL CASES, SUFFICIENT TIME SHOULD BE ALLOWED TO
ENSURE TIMELY DELIVERY. EXCEPT AS OTHERWISE PROVIDED IN INSTRUCTION 2 OF THIS
LETTER OF TRANSMITTAL, THE DELIVERY WILL BE DEEMED MADE ONLY WHEN ACTUALLY
RECEIVED BY THE DEPOSITARY.
8
<PAGE> 9
No alternative, conditional or contingent tenders will be accepted and no
fractional Shares will be purchased. All tendering shareholders, by execution of
this Letter of Transmittal (or a manually signed facsimile thereof), waive any
right to receive any notice of the acceptance of their Shares for payment.
3. Inadequate Space. If the space provided herein is inadequate, the
certificate numbers and/or the number of Shares should be listed on a separate
signed schedule attached hereto.
4. Partial Tenders. (Not applicable to shareholders who tender by
book-entry transfer.) If fewer than all the Shares evidenced by any certificate
submitted are to be tendered, fill in the number of Shares which are to be
tendered in the box entitled "Description of Shares to be Tendered". In such
case, new certificate(s) for the remainder of the Shares that were evidenced by
your old certificate(s) will be sent to you, unless otherwise provided in the
appropriate box on this Letter of Transmittal, as soon as practicable after the
Expiration Date. All Shares represented by certificates delivered to the
Depositary will be deemed to have been tendered unless otherwise indicated.
5. Signatures on Letter of Transmittal, Stock Powers and
Endorsements. (a) If this Letter of Transmittal is signed by the registered
holder(s) of the Shares tendered hereby, the signature(s) must correspond
exactly to the name(s) as written on the face of the certificate(s) without
alteration, enlargement or any change whatsoever.
(b) If any of the Shares tendered hereby are owned of record by two or more
joint owners, all such owners must sign this Letter of Transmittal.
(c) If any tendered Shares are registered in different names on several
certificates, it will be necessary to complete, sign and submit as many separate
Letters of Transmittal as there are different registrations of certificates.
(d) If this Letter of Transmittal or any certificates or stock powers are
signed by a trustee, executor, administrator, guardian, attorney-in-fact,
officer of a corporation or other person acting in a fiduciary or representative
capacity, such person should so indicate when signing, and proper evidence
satisfactory to the Purchaser of such person's authority so to act must be
submitted.
(e) When this Letter of Transmittal is signed by the registered owner(s) of
the Shares listed and transmitted hereby, no endorsement of certificates or
separate stock powers is required unless payment or certificates for Shares not
tendered or purchased are to be issued to a person other than the registered
owner(s). Signatures on such certificates or stock powers must be guaranteed by
an Eligible Institution.
(f) If this Letter of Transmittal is signed by a person other than the
registered owner(s) of the Shares listed, the certificates must be endorsed or
accompanied by appropriate stock powers, in either case signed exactly as the
name(s) of the registered holder(s) appear on the certificates. Signatures on
such certificates or stock powers must be guaranteed by an Eligible Institution.
6. Stock Transfer Taxes. Except as set forth in this Instruction 6 of this
Letter of Transmittal, the Purchaser will pay or cause to be paid any stock
transfer taxes with respect to the transfer and sale of purchased Shares to it
or its order pursuant to the Offer. If payment of the purchase price is to be
made, or if certificates for Shares not tendered or purchased are to be
registered in the name of any person other than the registered holder, or if
tendered certificates are registered in the name of any person other than the
person(s) signing this Letter of Transmittal, the amount of any stock transfer
taxes (whether imposed on the registered holder or such person) payable on
account of the transfer to such person will be deducted from the purchase price
unless satisfactory evidence of the payment of such taxes or exemption therefrom
is submitted.
EXCEPT AS PROVIDED IN THIS INSTRUCTION 6 OF THIS LETTER OF TRANSMITTAL, IT
WILL NOT BE NECESSARY FOR TRANSFER TAX STAMPS TO BE AFFIXED TO THE CERTIFICATES
LISTED IN THIS LETTER OF TRANSMITTAL.
7. Special Payment and Delivery Instructions. If a check and/or
certificates for unpurchased Shares are to be issued in the name of a person
other than the signer of this Letter of Transmittal or if a check is to be sent
and/or such certificates are to be returned to someone other than the signer of
this Letter of Transmittal or to an address other than that shown above, the
appropriate boxes on this Letter of Transmittal should be
9
<PAGE> 10
completed. Shareholders tendering Shares by book-entry transfer may request that
Shares not purchased be credited to such account maintained at the Book-Entry
Transfer Facility as such shareholder may designate hereon. If no such
instructions are given, such Shares not purchased will be returned by crediting
the account at the Book-Entry Transfer Facility.
8. Requests for Assistance or Additional Copies. Requests for assistance
may be directed to the Dealer Manager or the Information Agent at the addresses
and telephone numbers set forth below. Additional copies of the Offer to
Purchase, this Letter of Transmittal, the Notice of Guaranteed Delivery and the
Guidelines for Certification of Taxpayer Identification Number on Substitute
Form W-9 may be obtained from the Dealer Manager or the Information Agent at the
addresses set forth below or from your broker, dealer, commercial bank or trust
company.
9. Waiver of Conditions. Except as otherwise provided in the Offer to
Purchase, the Purchaser reserves the absolute right, in its sole discretion, to
waive any of the conditions of the Offer or any defect or irregularity in the
tender of any shares of any particular shareholder, whether or not similar
defects or irregularities are waived in the case of other shareholders.
10. Substitute Form W-9. Each tendering shareholder is required to provide
the Depositary with a correct Taxpayer Identification Number ("TIN") on the
Substitute Form W-9, which is provided under "Important Tax Information" below,
and to certify, under penalties of perjury, that such number is correct and that
such shareholder is not subject to backup withholding of federal income tax. If
a tendering shareholder has been notified by the Internal Revenue Service that
such shareholder is subject to backup withholding, such shareholder must cross
out item (2) of the Certification box of the Substitute Form W-9, unless such
shareholder has since been notified by the Internal Revenue Service that such
shareholder is no longer subject to backup withholding. Failure to provide the
information on the Substitute Form W-9 may subject the tendering shareholder to
31% federal income tax withholding with respect to any payments received
pursuant to the Offer and the Merger (as defined in the Offer to Purchase). If
the tendering shareholder has not been issued a TIN and has applied for one or
intends to apply for one in the near future, such shareholder should write
"Applied For" in the space provided for the TIN in Part I of the Substitute Form
W-9, and sign and date the Substitute Form W-9. If "Applied For" is written in
Part I and the Depositary is not provided with a TIN within 60 days, the
Depositary will withhold 31% on all payments of the purchase price to such
shareholder until a TIN is provided to the Depositary. Foreign shareholders must
submit Form W-8 to avoid the 31% withholding tax. Form W-8 may be obtained from
the Depositary.
11. Lost, Destroyed or Stolen Certificates. If any certificate(s)
representing Shares has been lost, destroyed or stolen, the shareholder should
promptly notify the Depositary. The shareholder will then be instructed as to
the steps that must be taken in order to replace the certificate(s). This Letter
of Transmittal and related documents cannot be processed until the procedures
for replacing lost or destroyed certificates have been followed.
IMPORTANT: THIS LETTER OF TRANSMITTAL (OR A FACSIMILE HEREOF), PROPERLY
COMPLETED AND DULY EXECUTED, TOGETHER WITH CERTIFICATES OR CONFIRMATION OF
BOOK-ENTRY TRANSFER AND ALL OTHER REQUIRED DOCUMENTS OR THE NOTICE OF GUARANTEED
DELIVERY, MUST BE RECEIVED BY THE DEPOSITARY AT ONE OF ITS ADDRESSES SET FORTH
HEREIN PRIOR TO THE EXPIRATION DATE.
10
<PAGE> 11
IMPORTANT TAX INFORMATION
Under Federal income tax law, a shareholder whose tendered Shares are
accepted for payment is required by law to provide the Depositary with such
shareholder's correct TIN on Substitute Form W-9 below. If such shareholder is
an individual, the TIN is such shareholder's social security number. If the
Depositary is not provided with the correct TIN, the shareholder may be subject
to a $50 penalty imposed by the Internal Revenue Service. In addition, payments
that are made to such shareholder with respect to Shares purchased pursuant to
the Offer may be subject to backup withholding of 31%.
Certain shareholders (including, among others, all corporations and certain
foreign individuals) are not subject to these backup withholding and reporting
requirements. In order for a foreign individual to qualify as an exempt
recipient, such individual must submit a statement, signed under penalties of
perjury, attesting to such individual's exempt status. Forms of such statements
can be obtained from the Depositary. See the enclosed Guidelines for
Certification of Taxpayer Identification Number on Substitute Form W-9 for
additional instructions.
If backup withholding applies with respect to a shareholder, the Depositary
is required to withhold 31% of any payments made to such shareholder. Backup
withholding is not an additional tax. Rather, the tax liability of persons
subject to backup withholding will be reduced by the amount of tax withheld. If
withholding results in an overpayment of taxes, a refund may be obtained from
the Internal Revenue Service.
PURPOSE OF SUBSTITUTE FORM W-9
To prevent backup withholding on payments that are made to a shareholder
with respect to Shares purchased pursuant to the Offer, the shareholder is
required to notify the Depositary of such shareholder's correct TIN by
completing the form below certifying (a) that the TIN provided on the Substitute
Form W-9 is correct (or that such shareholder is awaiting a TIN), and (b) that
such shareholder is not subject to backup withholding because (i) such
shareholder is exempt from backup withholding, (ii) such shareholder has not
been notified by the Internal Revenue Service that such shareholder is subject
to backup withholding as a result of a failure to report all interest or
dividends or (iii) such shareholder has been notified by the Internal Revenue
Service that such shareholder is no longer subject to backup withholding.
WHAT NUMBER TO GIVE THE DEPOSITARY
The shareholder is required to give the Depositary the social security
number or employer identification number of the record owner of the Shares
tendered hereby. If the Shares are in more than one name or are not in the name
of the actual owner, consult the enclosed Guidelines for Certification of
Taxpayer Identification Number on Substitute Form W-9 for additional guidance on
which number to report. If the tendering shareholder has not been issued a TIN
and has applied for a number or intends to apply for a number in the near
future, the shareholder should write "Applied For" in the space provided for in
the TIN in Part I, and sign and date the Substitute Form W-9. If "Applied For"
is written in Part I and the Depositary is not provided with a TIN within 60
days, the Depositary will withhold 31% of all payments of the purchase price to
such shareholder until a TIN is provided to the Depositary.
11
<PAGE> 12
<TABLE>
<S> <C> <C>
- ----------------------------------------------------------------------------------------------------------------------
PAYER'S NAME: THE BANK OF NEW YORK
- ----------------------------------------------------------------------------------------------------------------------
SUBSTITUTE PART I -- PLEASE PROVIDE YOUR TIN IN THE BOX ------------------------------
AT RIGHT AND CERTIFY BY SIGNING AND DATING Social Security Number
FORM W-9 BELOW. or
Department of the Treasury ------------------------------------
Internal Revenue Service Employer Identification Number
(If awaiting TIN write
"Applied For")
---------------------------------------------------------------------------------
PART II -- For Payees exempt from backup withholding, see the enclosed Guidelines
for Certification of Taxpayer Identification Number on Substitute Form W-9 and
complete as instructed therein.
PAYER'S REQUEST FOR Certification -- Under penalties of perjury, I certify that:
TAXPAYER IDENTIFICATION (1) The number shown on this form is my correct Taxpayer Identification Number (or
NUMBER (TIN) a Taxpayer Identification Number has not been issued to me) and either (a) I
have mailed or delivered an application to receive a Taxpayer Identification
Number to the appropriate Internal Revenue Service ("IRS") or Social Security
Administration office or (b) I intend to mail or deliver an application in the
near future. I understand that if I do not provide a Taxpayer Identification
Number within 60 days, 31% of all reportable payments made to me thereafter
will be withheld until I provide a number, and
(2) I am not subject to backup withholding either because (a) I am exempt from
backup withholding, (b) I have not been notified by the IRS that I am subject
to backup withholding as a result of a failure to report all interest or
dividends, or (c) the IRS has notified me that I am no longer subject to
backup withholding.
CERTIFICATE INSTRUCTIONS -- You must cross out item (2) above if you have been
notified by the IRS that you are subject to backup withholding because of
underreporting interest or dividends on your tax return. However, if after being
notified by the IRS that you were subject to backup withholding you received
another notification from the IRS that you are no longer subject to backup
withholding, do not cross out item (2). (Also see instructions in the enclosed
Guidelines.)
---------------------------------------------------------------------------------
Signature
-------------------------------------------------------------------
Date _________________________________________________________________, 1998
- ----------------------------------------------------------------------------------------------------------------------
</TABLE>
NOTE: FAILURE TO COMPLETE AND RETURN THIS FORM MAY RESULT IN BACKUP WITHHOLDING
OF 31% OF ANY PAYMENTS MADE TO YOU PURSUANT TO THE OFFER. PLEASE REVIEW
THE ENCLOSED GUIDELINES FOR CERTIFICATION OF TAXPAYER IDENTIFICATION
NUMBER ON SUBSTITUTE FORM W-9 FOR ADDITIONAL DETAILS.
12
<PAGE> 13
Questions and requests for assistance or additional copies of the Offer to
Purchase, Letter of Transmittal and other tender offer materials may be directed
to the Information Agent or the Dealer Manager as set forth below:
The Information Agent for the Offer is:
INNISFREE M&A INCORPORATED
501 Madison Avenue
20th Floor
New York, New York 10022
(888) 750-5834 (Toll-Free)
Banks and Brokers Call: (212) 750-5833 (Collect)
The Dealer Manager for the Offer is:
BEAR, STEARNS & CO. INC.
245 Park Avenue
New York, New York 10167
(888) 933-8901 (Toll-Free)
13
<PAGE> 1
EXHIBIT (a)(3)
NOTICE OF GUARANTEED DELIVERY
for
TENDER OF SHARES OF COMMON STOCK
(INCLUDING THE ASSOCIATED COMMON STOCK PURCHASE RIGHTS)
of
DAWSON PRODUCTION SERVICES, INC.
to
MIDLAND ACQUISITION CORP.
(NOT TO BE USED FOR SIGNATURE GUARANTEES)
This Notice of Guaranteed Delivery, or one substantially in the form
hereof, must be used to tender Shares (as defined below) pursuant to the Offer
(as defined below) if (i) certificates ("Share Certificates") representing
shares of common stock, par value $.01 per share (the "Common Stock"), of Dawson
Production Services, Inc., a Texas corporation (the "Company"), including the
associated common stock purchase rights (the "Rights" and, together with the
Common Stock, the "Shares") issued pursuant to the Rights Agreement, dated as of
September 11, 1997, as amended, between the Company and Harris Trust Company of
New York, as Rights Agent (the "Rights Agreement"), are not immediately
available; (ii) time will not permit all required documents to reach The Bank of
New York, as Depositary (the "Depositary"), prior to the Expiration Date (as
defined in the Offer to Purchase); or (iii) the procedure for delivery by
book-entry transfer cannot be completed on a timely basis. This Notice of
Guaranteed Delivery may be delivered by hand or mail or transmitted by telegram
or facsimile to the Depositary. See Section 3 of the Offer to Purchase.
The Depositary for the Offer is:
THE BANK OF NEW YORK
------------------
<TABLE>
<S> <C> <C>
By Mail: By Facsimile Transmission: By Hand or By Overnight Courier:
Tenders & Exchange Department (for Eligible Institutions Only) Tenders & Exchange Department
P.O. Box 11248 (212) 815-6213 101 Barclay Street
Church Street Station Receive and Deliver Window
New York, New York 10286-1248 New York, New York 10286
For Confirmation Telephone:
(800) 507-9357
</TABLE>
DELIVERY OF THIS NOTICE OF GUARANTEED DELIVERY TO AN ADDRESS OTHER THAN AS
SET FORTH ABOVE, AND TRANSMISSION OF INSTRUCTIONS VIA FACSIMILE TRANSMISSION
OTHER THAN AS SET FORTH ABOVE, WILL NOT CONSTITUTE A VALID DELIVERY.
THIS FORM IS NOT TO BE USED TO GUARANTEE SIGNATURES. IF A SIGNATURE ON A LETTER
OF TRANSMITTAL IS REQUIRED TO BE GUARANTEED BY AN "ELIGIBLE INSTITUTION" UNDER
THE INSTRUCTIONS THERETO, SUCH SIGNATURE GUARANTEE MUST APPEAR IN THE APPLICABLE
SPACE PROVIDED IN THE SIGNATURE BOX ON THE LETTER OF TRANSMITTAL.
<PAGE> 2
Ladies and Gentlemen:
The undersigned hereby tenders to Midland Acquisition Corp., a New Jersey
corporation, upon the terms and subject to the conditions set forth in the Offer
to Purchase and in the related Letter of Transmittal (which together, as amended
or supplemented from time to time, constitute the "Offer"), receipt of which is
hereby acknowledged, the number of Shares indicated below pursuant to the
guaranteed delivery procedures set forth in Section 3 of the Offer to Purchase.
- -------------------------------------------------------
Number of Shares:
-----------------------------------
Certificate No(s). (if available):
------------------------------------------------------
------------------------------------------------------
If Shares will be tendered by book-entry transfer:
Name of Tendering Institution:
------------------------------------------------------
Account No.:
----------------------------------------
Dated:__________________________________________, 19
- -------------------------------------------------------
- -------------------------------------------------------
Name(s) of Record Holder(s):
----------------------------------------------------
----------------------------------------------------
(Please Type or Print)
Address(es):
----------------------------------------
----------------------------------------------------
Zip Code
Area Code and Tel. No.:
-----------------------------
Signature(s):
---------------------------------------
----------------------------------------------------
Dated:__________________________________________, 19
- -------------------------------------------------------
2
<PAGE> 3
GUARANTEE
(NOT TO BE USED FOR SIGNATURE GUARANTEE)
The undersigned, a firm that is a bank, broker, dealer, credit union,
savings association or other entity which is a member in good standing of the
Security Transfer Agents Medallion Program hereby (a) represents that the tender
of Shares effected hereby complies with Rule 14e-4 under the Securities Exchange
Act of 1934, as amended and (b) guarantees delivery to the Depositary, at one of
its addresses set forth above, of certificates representing the Shares tendered
hereby, in proper form for transfer, or confirmation of book-entry transfer of
such Shares into the Depositary's account at The Depository Trust Company in
each case with delivery of a properly completed and duly executed Letter of
Transmittal (or facsimile thereof), and any other required documents, within
three New York Stock Exchange, Inc. trading days after the date hereof.
The Eligible Institution that completes this form must communicate the
guarantee to the Depositary and must deliver the Letter of Transmittal and the
certificates for Shares to the Depositary within the time period shown herein.
Failure to do so could result in a financial loss to such Eligible Institution.
Name of Firm:
-------------------------------------------------------------------
- --------------------------------------------------------------------------------
Authorized Signature
Address:
------------------------------------------------------------------------
(Zip Code)
Area Code and Tel. No.:
---------------------------------------------------------
Name:
---------------------------------------------------------------------------
Please Type or Print
Title:
--------------------------------------------------------------------------
Date:_______________________________, 1998
NOTE: DO NOT SEND CERTIFICATES FOR SHARES WITH THIS NOTICE. CERTIFICATES SHOULD
BE SENT WITH YOUR LETTER OF TRANSMITTAL.
3
<PAGE> 1
EXHIBIT (a)(4)
OFFER TO PURCHASE FOR CASH
ALL OUTSTANDING SHARES OF COMMON STOCK
(INCLUDING THE ASSOCIATED COMMON STOCK PURCHASE RIGHTS)
of
DAWSON PRODUCTION SERVICES, INC.
by
MIDLAND ACQUISITION CORP.
at
$17.50 NET PER SHARE IN CASH
- --------------------------------------------------------------------------------
THE OFFER AND WITHDRAWAL RIGHTS WILL EXPIRE AT 12:00 MIDNIGHT, NEW YORK
CITY TIME, ON MONDAY, SEPTEMBER 14, 1998, UNLESS THE OFFER IS EXTENDED.
- --------------------------------------------------------------------------------
August 17, 1998
To Brokers, Dealers, Commercial Banks, Trust Companies and Other Nominees:
We have been engaged by Midland Acquisition Corp., a New Jersey corporation
(the "Purchaser") and a wholly owned subsidiary of Key Energy Group, Inc.
("Parent"), to act as Dealer Manager in connection with the Purchaser's offer to
purchase all outstanding shares of common stock, par value $.01 per share (the
"Common Stock"), of Dawson Production Services, Inc., a Texas corporation (the
"Company"), including the associated common stock purchase rights (the "Rights"
and, together with the Common Stock, the "Shares") issued pursuant to the Rights
Agreement, dated as of September 11, 1997, as amended, between the Company and
Harris Trust Company of New York, as Rights Agent (the "Rights Agreement"). The
Purchaser is tendering for all outstanding Shares at a purchase price of $17.50
per Share net to the seller in cash, without interest thereon (the "Offer
Price"), upon the terms and subject to the conditions set forth in the Offer to
Purchase and in the Letter of Transmittal (which, as amended from time to time,
together constitute the "Offer"). The Offer is being made in connection with the
Agreement and Plan of Merger, dated as of August 11, 1998 (the "Merger
Agreement"), by and among Parent, the Purchaser and the Company. All capitalized
terms used and not otherwise defined herein shall have the meanings ascribed to
them in the Offer to Purchase. Please furnish copies of the enclosed materials
to those of your clients for whom you hold Shares registered in your name or in
the name of your nominee.
For your information and for forwarding to your clients for whom you hold
Shares registered in your name or in the name of your nominee, or who hold
Shares registered in their own names, we are enclosing the following documents:
1. Offer to Purchase;
2. Letter of Transmittal to be used by holders of Shares in accepting
the Offer and tendering Shares;
3. A letter which may be sent to your clients for whose account you
hold Shares registered in your name or in the name of your nominees, with
space provided for obtaining such clients' instructions with regard to the
Offer;
4. Notice of Guaranteed Delivery to be used to accept the Offer if
certificates for Shares are not immediately available or if time will not
permit all required documents to reach the Depositary by the Expiration
Date or if the procedure for book-entry transfer cannot be completed on a
timely basis;
5. Guidelines of the Internal Revenue Service for Certification of
Taxpayer Identification Number on Substitute Form W-9; and
<PAGE> 2
6. Return envelope addressed to the Depositary.
The Offer is conditioned upon, among other things, there being validly
tendered and not withdrawn prior to the Expiration Date a number of Shares,
which, when added to the number of Shares beneficially owned by Parent or the
Purchaser, constitutes a majority of the total number of Shares outstanding on a
fully diluted basis at the time Shares are accepted for payment pursuant to the
Offer. The Offer is also subject to other terms and conditions contained in the
Offer to Purchase. See Section 14 of the Offer to Purchase.
THE BOARD OF DIRECTORS OF THE COMPANY HAS UNANIMOUSLY APPROVED THE MERGER
AGREEMENT AND THE TRANSACTIONS CONTEMPLATED THEREBY, INCLUDING THE OFFER AND THE
MERGER, AND DETERMINED THAT THE TERMS OF THE OFFER AND THE MERGER ARE FAIR TO,
AND IN THE BEST INTERESTS OF, THE COMPANY'S SHAREHOLDERS AND UNANIMOUSLY
RECOMMENDS THAT SHAREHOLDERS OF THE COMPANY ACCEPT THE OFFER AND TENDER THEIR
SHARES.
Upon the terms and subject to the conditions of the Offer (including, if
the Offer is extended or amended, the terms and conditions of any such extension
or amendment), the Purchaser will accept for payment and pay for all Shares
which are validly tendered prior to the Expiration Date and not theretofore
properly withdrawn when, as and if the Purchaser gives oral or written notice to
the Depositary of the Purchaser's acceptance of such Shares for payment pursuant
to the Offer. Payment for Shares purchased pursuant to the Offer will in all
cases be made only after timely receipt by the Depositary of certificates for
such Shares, or timely confirmation of a book-entry transfer of such Shares into
the Depositary's account at the Book-Entry Transfer Facility, pursuant to the
procedures described in Section 3 of the Offer to Purchase, a properly completed
and duly executed Letter of Transmittal (or manually signed facsimile thereof)
or an Agent's Message (as defined in the Offer to Purchase) in connection with a
book-entry transfer, and all other documents required by the Letter of
Transmittal.
Neither the Purchaser nor Parent will pay any fees or commissions to any
broker or dealer or other person (other than the Dealer Manager) in connection
with the solicitation of tenders of Shares pursuant to the Offer. The Purchaser
will, however, upon request, reimburse you for customary mailing and handling
expenses incurred by you in forwarding the enclosed materials to your clients.
The Purchaser will pay or cause to be paid any transfer taxes payable on the
transfer of Shares to it, except as otherwise provided in Instruction 6 of the
Letter of Transmittal.
YOUR PROMPT ACTION IS REQUESTED. WE URGE YOU TO CONTACT YOUR CLIENTS AS
PROMPTLY AS POSSIBLE. THE OFFER AND WITHDRAWAL RIGHTS WILL EXPIRE AT 12:00
MIDNIGHT, NEW YORK CITY TIME, ON MONDAY, SEPTEMBER 14, 1998, UNLESS THE OFFER IS
EXTENDED.
In order to take advantage of the Offer, a duly executed and properly
completed Letter of Transmittal (or facsimile thereof), with any required
signature guarantees and any other required documents, should be sent to the
Depositary, and certificates representing the tendered Shares should be
delivered or such Shares should be tendered by book-entry transfer, all in
accordance with the Instructions set forth in the Letter of Transmittal and the
Offer to Purchase.
If holders of Shares wish to tender, but it is impracticable for them to
forward their certificates or other required documents prior to the expiration
of the Offer, a tender may be effected by following the guaranteed delivery
procedures specified under Section 3 of the Offer to Purchase.
2
<PAGE> 3
Any inquiries you may have with respect to the Offer should be addressed to
the Dealer Manager or the Information Agent at their respective addresses and
telephone numbers set forth on the back cover page of the Offer to Purchase.
Additional copies of the enclosed materials may be obtained from the undersigned
by telephone (888) 933-8901 (toll-free), by calling the Information Agent,
Innisfree M&A Incorporated, at (212) 750-5833 (call collect) or from brokers,
dealers, commercial banks or trust companies.
Very truly yours,
BEAR, STEARNS & CO. INC.
- --------------------------------------------------------------------------------
NOTHING CONTAINED HEREIN OR IN THE ENCLOSED DOCUMENTS SHALL CONSTITUTE YOU
OR ANY PERSON AS AN AGENT OF THE PURCHASER, PARENT, THE DEPOSITARY, THE
INFORMATION AGENT OR THE DEALER MANAGER, OR ANY AFFILIATE OF ANY OF THE
FOREGOING, OR AUTHORIZE YOU OR ANY OTHER PERSON TO USE ANY DOCUMENT OR MAKE ANY
STATEMENT ON BEHALF OF ANY OF THEM IN CONNECTION WITH THE OFFER OTHER THAN THE
DOCUMENTS ENCLOSED AND THE STATEMENTS CONTAINED THEREIN.
- --------------------------------------------------------------------------------
3
<PAGE> 1
EXHIBIT (a)(5)
OFFER TO PURCHASE FOR CASH
ALL OUTSTANDING SHARES OF COMMON STOCK
(INCLUDING THE ASSOCIATED COMMON STOCK PURCHASE RIGHTS)
of
DAWSON PRODUCTION SERVICES, INC.
by
MIDLAND ACQUISITION CORP.
at
$17.50 PER SHARE
To Our Clients: August 17, 1998
Enclosed for your consideration is the Offer to Purchase, dated August 17,
1998 (the "Offer to Purchase"), and the Letter of Transmittal (which, as amended
from time to time, together constitute the "Offer") relating to an offer by
Midland Acquisition Corp., a New Jersey corporation (the "Purchaser") and a
wholly owned subsidiary of Key Energy Group, Inc., a Maryland corporation
("Parent"), to purchase all outstanding shares of common stock, par value $.01
per share (the "Common Stock"), of Dawson Production Services, Inc., a Texas
corporation (the "Company"), including the associated common stock purchase
rights (the "Rights" and, together with the Common Stock, the "Shares") issued
pursuant to the Rights Agreement, dated as of September 11, 1997, as amended,
between the Company and Harris Trust Company of New York, as Rights Agent. The
Purchaser is tendering for all outstanding Shares at a purchase price of $17.50
per Share, net to the seller in cash, without interest thereon (the "Offer
Price") upon the terms and subject to the conditions set forth in the Offer to
Purchase. The Offer is being made in connection with the Agreement and Plan of
Merger, dated as of August 11, 1998, by and among Parent, the Purchaser and the
Company (the "Merger Agreement"). Also enclosed is the Letter to Shareholders of
the Company from Michael E. Little, Chairman, President and Chief Executive
Officer of the Company, together with a Solicitation/Recommendation Statement on
Schedule 14D-9.
If a shareholder desires to tender Shares pursuant to the Offer and such
shareholder's Share Certificates (as defined in the Offer to Purchase) are not
immediately available or time will not permit all required documents to reach
the Depositary prior to the Expiration Date or the procedure for book-entry
transfer cannot be completed on a timely basis, such Shares may nevertheless be
tendered according to the guaranteed delivery procedures set forth in Section 3
of the Offer to Purchase. See Instruction 2 of the Letter of Transmittal.
Delivery of documents to the Book-Entry Transfer Facility (as defined in the
Offer to Purchase) in accordance with the Book-Entry Transfer Facility's
procedures does not constitute delivery to the Depositary.
A tender of such Shares can be made only by us as the holder of record and
pursuant to your instructions. THE LETTER OF TRANSMITTAL IS FURNISHED TO YOU FOR
YOUR INFORMATION ONLY AND CANNOT BE USED BY YOU TO TENDER SHARES HELD BY US FOR
YOUR ACCOUNT.
Accordingly, we request instructions as to whether you wish to tender any
or all of such Shares held by us for your account, pursuant to the terms and
conditions set forth in the Offer.
Your attention is invited to the following:
1. The tender price is $17.50 per Share, net to the seller in cash
without interest.
2. The Offer and withdrawal rights will expire at 12:00 midnight, New
York City time, on Monday, September 14, 1998, unless the Offer is
extended.
3. The Offer is being made for all outstanding Shares.
<PAGE> 2
4. THE BOARD OF DIRECTORS OF THE COMPANY HAS UNANIMOUSLY APPROVED THE
MERGER AGREEMENT AND THE TRANSACTIONS CONTEMPLATED THEREBY, INCLUDING THE
OFFER AND THE MERGER (AS DEFINED IN THE OFFER TO PURCHASE) AND DETERMINED
THAT THE TERMS OF THE OFFER AND THE MERGER ARE FAIR TO, AND IN THE BEST
INTERESTS OF, THE COMPANY'S SHAREHOLDERS, AND UNANIMOUSLY RECOMMENDS THAT
SHAREHOLDERS ACCEPT THE OFFER AND TENDER THEIR SHARES.
5. The Offer is conditioned upon, among other things, there being
validly tendered and not withdrawn prior to the Expiration Date a number of
Shares which, when added to the number of Shares beneficially owned by
Parent or the Purchaser, constitutes a majority of the total number of
outstanding Shares on a fully diluted basis at the time Shares are accepted
for payment pursuant to the Offer.
6. Shareholders who tender Shares will not be obligated to pay
brokerage commissions, solicitation fees or, except as set forth in the
Letter of Transmittal, transfer taxes on the purchase of Shares by the
Purchaser pursuant to the Offer.
The Purchaser is not aware of any jurisdiction where the making of the
Offer is prohibited by administrative or judicial action pursuant to any valid
state statute. If the Purchaser becomes aware of any valid state statute
prohibiting the making of the Offer or the acceptance of the Shares pursuant
thereto, Purchaser will make a good faith effort to comply with such state
statute. If, after such good faith effort, the Purchaser cannot comply with any
such state statute, the Offer will not be made to (nor will tenders be accepted
from or on behalf of) the holders of Shares in such state. In any jurisdiction
where the securities, blue sky or other laws require the Offer to be made by a
licensed broker or dealer, the Offer shall be deemed to be made on behalf of the
Purchaser by the Dealer Manager (as defined in the Offer to Purchase) or one or
more registered brokers or dealers which are licensed under the laws of such
jurisdiction.
If you wish to have us tender any or all of your Shares, please complete,
sign and return to us the form set forth below. An envelope to return your
instructions to us is enclosed. Your instructions to us should be forwarded in
ample time to permit us to submit a tender on your behalf prior to the
expiration of the Offer. If you authorize the tender of your Shares, all such
Shares will be tendered unless otherwise specified on the instruction form set
forth below.
2
<PAGE> 3
INSTRUCTIONS WITH RESPECT TO THE OFFER
TO PURCHASE FOR CASH ALL OUTSTANDING SHARES OF COMMON STOCK
(INCLUDING THE ASSOCIATED COMMON STOCK PURCHASE RIGHTS)
OF
DAWSON PRODUCTION SERVICES, INC.
The undersigned acknowledge(s) receipt of your letter and the enclosed
Offer to Purchase, dated August 17, 1998, and the Letter of Transmittal (which,
together as amended from time to time constitute the "Offer") relating to the
offer by Midland Acquisition Corp., a New Jersey corporation (the "Purchaser"),
to purchase all outstanding shares of common stock, par value $.01 per share
(the "Common Stock"), of Dawson Production Services, Inc., a Texas corporation
(the "Company"), including the associated common stock purchase rights (the
"Rights" and, together with the Common Stock, the "Shares") issued pursuant to
the Rights Agreement, dated as of September 11, 1997, as amended, between the
Company and Harris Trust Company of New York, as Rights Agent.
This will instruct you to tender to the Purchaser the number of Shares
indicated below (or if no number is indicated below, all Shares) held by you for
the account of the undersigned, on the terms and subject to the conditions set
forth in the Offer.
- ----------------------------------
NUMBER OF SHARES TO BE TENDERED:* SIGN HERE
Shares:
------------- ---------------------------------------------
ACCOUNT NUMBER: Signature(s)
Dated: , 1998 ---------------------------------------------
- ---------------------------------- Please Print Name(s) and address(es) here
---------------------------------------------
Area Code and Telephone Number
---------------------------------------------
Tax Identification or Social Security
Number(s)
- ---------------
* Unless otherwise indicated, it will be assumed that all of your Shares held by
us for your account are to be tendered.
3
<PAGE> 1
EXHITBIT (a)(6)
GUIDELINES FOR CERTIFICATION OF TAXPAYER IDENTIFICATION
NUMBER ON SUBSTITUTE FORM W-9
GUIDELINES FOR DETERMINING THE PROPER IDENTIFICATION NUMBER TO GIVE THE
PAYER. -- Social Security numbers have nine digits separated by two hyphens:
i.e. 000-00-0000. Employer identification numbers have nine digits separated by
only one hyphen: i.e. 00-0000000. The table below will help determine the number
to give the payer.
<TABLE>
<CAPTION>
=========================================================
FOR THIS TYPE OF ACCOUNT: GIVE THE
SOCIAL
SECURITY
NUMBER OF --
- ---------------------------------------------------------
<S> <C> <C>
1. An individual's account. The individual
2. Two or more individuals The actual owner of
(joint account) the account or, if
combined funds, any
one of the
individuals(1)
3. Husband and wife (joint The actual owner of
account) the account or, if
joint funds, either
person(1)
4. Custodian account of a minor The minor(2)
(Uniform Gift to Minors Act)
5. Adult and minor (joint The adult or, if the
account) minor is the only
contributor, the
minor(1)
6. Account in the name of The ward, minor, or
guardian or committee for a incompetent person(3)
designated ward, minor, or
incompetent person
7. a. The usual revocable The grantor-
savings trust account trustee(1)
(grantor is also trustee)
b. So-called trust account The actual owner(1)
that is not a legal or
valid trust under State
Law
8. Sole proprietorship account The owner(4)
=========================================================
=========================================================
FOR THIS TYPE OF ACCOUNT: GIVE THE EMPLOYER
IDENTIFICATION
NUMBER OF --
- ---------------------------------------------------------
9. A valid trust, estate, or The legal entity (Do
pension trust not furnish the
identifying number of
the personal
representative or
trustee unless the
legal entity itself is
not designated in the
account title.)(5)
10. Corporate account The corporation
11. Religious, charitable, or The organization
educational organization
account
12. Partnership account held in The partnership
the name of the business
13. Association, club, or other The organization
tax-exempt organization
14. A broker or registered The broker or nominee
nominee
15. Account with the Department The public entity
of Agriculture in the name
of a public entity (such as
a State or local government,
school district, or prison)
that receives agricultural
program payments
=========================================================
</TABLE>
(1) List first and circle the name of the person whose number you furnish.
(2) Circle the minor's name and furnish the minor's social security number.
(3) Circle the ward's, minor's or incompetent person's name and furnish such
person's social security number.
(4) Show the name of the owner.
(5) List first and circle the name of the legal trust, estate, or pension trust.
NOTE: If no name is circled when there is more than one name, the number will be
considered to be that of the first name listed.
<PAGE> 2
GUIDELINES FOR CERTIFICATION OF TAXPAYER IDENTIFICATION
NUMBER OF SUBSTITUTE FORM W-9
PAGE 2
OBTAINING A NUMBER
If you don't have a taxpayer identification number or you don't know your
number, obtain Form SS-5, Application for a Social Security Number Card, or Form
SS-4, Application for Employer Identification Number, at the local office of the
Social Security Administration or the Internal Revenue Service (the "IRS") and
apply for a number.
PAYEES EXEMPT FROM BACKUP WITHHOLDING
Payees specifically exempted from backup withholding on ALL payments include the
following:
- A corporation.
- A financial institution.
- An organization exempt from tax under section 501(a), or an individual
retirement plan.
- The United States or any agency or instrumentality thereof.
- A State, the District of Columbia, a possession of the United States, or any
subdivision or instrumentality thereof.
- A foreign government, a political subdivision of a foreign government, or any
agency or instrumentality thereof.
- An international organization or any agency, or instrumentality thereof.
- A registered dealer in securities or commodities registered in the U.S. or a
possession of the U.S.
- A real estate investment trust.
- A common trust fund operated by a bank under section 584(a).
- An exempt charitable remainder trust, or a nonexempt trust described in
section 4947(a)(1).
- An entity registered at all times under the Investment Company Act of 1940.
- A foreign central bank of issue.
Payments of dividends and patronage dividends not generally subject to backup
withholding include the following:
- Payments to nonresident aliens subject to withholding under section 1441.
- Payments to partnerships not engaged in a trade or business in the U.S. and
which have at least one nonresident partner.
- Payments of patronage dividends where the amount received is not paid in
money.
- Payments made by certain foreign organizations.
- Payments made to a nominee.
Payments of interest not generally subject to backup withholding include the
following:
- Payments of interest on obligations issued by individuals.
Note: You may be subject to backup withholding if this interest is $600 or more
and is paid in the course of the payer's trade or business and you have not
provided your correct taxpayer identification number to the payer.
- Payments of tax-exempt interest (including exempt-interest dividends under
section 852).
- Payments described in section 6049(b)(5) to non-resident aliens.
- Payments on tax-free covenant bonds under section 1451.
- Payments made by certain foreign organizations.
- Payments made to a nominee.
Exempt payees described above should file Form W-9 to avoid possible erroneous
backup withholding. FILE THIS FORM WITH THE PAYER, FURNISH YOUR TAXPAYER
IDENTIFICATION NUMBER, WRITE "EXEMPT" ON THE FACE OF THE FORM, AND RETURN IT TO
THE PAYER. IF THE PAYMENTS ARE INTEREST, DIVIDENDS, OR PATRONAGE DIVIDENDS, ALSO
SIGN AND DATE THE FORM.
Certain payments other than interest, dividends, and patronage dividends, that
are not subject to information reporting are also not subject to backup
withholding. For details, see the regulations under sections 6041, 6041A(a),
6045, and 6050A.
PRIVACY ACT NOTICE. -- Section 6109 requires most recipients of dividend,
interest, or other payments to give taxpayer identification numbers to payers
who must report the payments to the IRS. The IRS uses the numbers for
identification purposes. Payers must be given the numbers whether or not
recipients are required to file tax returns. Payers must generally withhold 31%
of taxable interest, dividend, and certain other payments to a payee who does
not furnish a taxpayer identification number to a payer. Certain penalties may
also apply.
PENALTIES
(1) PENALTY FOR FAILURE TO FURNISH TAXPAYER IDENTIFICATION NUMBER. -- If you
fail to furnish your taxpayer identification number to a payer, you are subject
to a penalty of $50 for each such failure unless your failure is due to
reasonable cause and not to willful neglect.
(2) FAILURE TO REPORT CERTAIN DIVIDEND AND INTEREST PAYMENTS. -- If you fail to
include any portion of an includible payment for interest, dividends, or
patronage dividends in gross income, such failure will be treated as being due
to negligence and will be subject to a penalty of 5% on any portion of an
under-payment attributable to that failure unless there is clear and convincing
evidence to the contrary.
(3) CIVIL PENALTY FOR FALSE INFORMATION WITH RESPECT TO WITHHOLDING. -- If you
make a false statement with no reasonable basis which results in no imposition
of backup withholding, you are subject to a penalty of $500.
(4) CRIMINAL PENALTY FOR FALSIFYING INFORMATION. -- Falsifying certifications or
affirmations may subject you to criminal penalties including fines and/or
imprisonment.
FOR ADDITIONAL INFORMATION CONTACT YOUR TAX
CONSULTANT OR THE INTERNAL REVENUE SERVICE
<PAGE> 1
EXHIBIT (a)(7)
This announcement is neither an offer to purchase nor a solicitation of an
offer to sell Shares (as defined below). The Offer is made solely by the Offer
to Purchase dated August 17, 1998 and the related Letter of Transmittal and is
not being made to (nor will tenders be accepted from or on behalf of) holders
of Shares in any jurisdiction in which the making of the Offer or the
acceptance thereof would not be in compliance with the laws of such
jurisdiction. In those jurisdictions where securities, blue sky or other laws
require the Offer to be made by a licensed broker or dealer, the Offer shall be
deemed to be made on behalf of Midland Acquisition Corp. by Bear, Stearns & Co.
Inc. or one or more registered brokers or dealers licensed under the laws of
such jurisdiction.
NOTICE OF OFFER TO PURCHASE FOR CASH
ALL OUTSTANDING SHARES OF COMMON STOCK
(INCLUDING THE ASSOCIATED COMMON STOCK PURCHASE RIGHTS)
OF
DAWSON PRODUCTION SERVICES, INC.
AT
$17.50 NET PER SHARE
BY
MIDLAND ACQUISITION CORP.
A WHOLLY OWNED SUBSIDIARY OF
KEY ENERGY GROUP, INC.
Midland Acquisition Corp., a New Jersey corporation (the "Purchaser") and a
wholly owned subsidiary of Key Energy Group, Inc., a Maryland corporation
("Parent"), is offering to purchase all outstanding shares of common stock, par
value $.01 per share (the "Common Stock"), including the common stock purchase
rights associated therewith (the "Rights" and, together with the Common Stock,
the "Shares") issued pursuant to the Rights Agreement, dated as of September
11, 1997, as amended, between the Company and Harris Trust Company of New York,
as Rights Agent (the "Rights Agreement"), of Dawson Production Services, Inc.,
a Texas corporation (the "Company"), at a price of $17.50 per Share, net to the
seller in cash, without interest thereon (the "Offer Price"), upon the terms
and subject to the conditions set forth in the Offer to Purchase, dated August
17, 1998 (the "Offer to Purchase"), and the related Letter of Transmittal
(which, together with any amendments or supplements thereto, collectively
constitute the "Offer").
THE OFFER AND WITHDRAWAL RIGHTS WILL EXPIRE AT 12:00 MIDNIGHT, NEW
YORK CITY TIME, ON MONDAY, SEPTEMBER 14, 1998, UNLESS THE OFFER IS EXTENDED.
The Offer is being made pursuant to an Agreement and Plan of Merger, dated as
of August 11, 1998 (the "Merger Agreement"), by and among Parent, the Purchaser
and the Company. The Merger Agreement provides that, following consummation of
the Offer and the satisfaction or waiver of the conditions set forth in the
Merger Agreement, the Purchaser will be merged with and into the Company (the
"Merger") and each Share then outstanding (other than Shares held by the
Company as treasury stock, Shares owned by Parent, the Purchaser or any other
wholly owned subsidiary of Parent and Shares held by shareholders who perfect
any available appraisal rights under the Texas Business Corporation Act) will
be converted into the right to receive the Offer Price or any higher price per
Share paid in the Offer, in cash payable to the holder thereof without interest
thereon. The Company has amended the Rights Agreement (the "Rights Amendment")
to prevent the approval, execution and delivery of the Merger Agreement and the
consummation of any of the transactions contemplated thereby, including the
Offer, from resulting in (i) Parent, the Purchaser or any of their affiliates
being deemed to be an Acquiring Person (as defined in the Rights Agreement),
(ii) the distribution of separate Rights certificates, or (iii) the occurrence
of a Distribution Date, Shares Acquisition Date, Flip-In Event or Triggering
Event (as such terms are defined in the Rights Agreement) and has represented
in the Merger Agreement that the Rights Amendment will be sufficient to render
the Rights inoperative with respect to any acquisition of Shares by Parent, the
Purchaser or any of their affiliates pursuant to the Merger Agreement.
THE BOARD OF DIRECTORS OF THE COMPANY HAS UNANIMOUSLY APPROVED THE MERGER
<PAGE> 2
AGREEMENT AND THE TRANSACTIONS CONTEMPLATED THEREBY, INCLUDING THE OFFER AND
THE MERGER, AND DETERMINED THAT THE TERMS OF THE OFFER AND THE MERGER ARE FAIR
TO, AND IN THE BEST INTERESTS OF, THE COMPANY'S SHAREHOLDERS, AND UNANIMOUSLY
RECOMMENDS THAT SHAREHOLDERS ACCEPT THE OFFER AND TENDER THEIR SHARES.
THE OFFER IS CONDITIONED UPON, AMONG OTHER THINGS, (1) THERE BEING VALIDLY
TENDERED AND NOT WITHDRAWN PRIOR TO THE EXPIRATION DATE A NUMBER OF SHARES
WHICH, WHEN ADDED TO THE NUMBER OF SHARES BENEFICIALLY OWNED BY PARENT OR THE
PURCHASER, CONSTITUTES A MAJORITY OF THE TOTAL NUMBER OF SHARES OF THE COMPANY
OUTSTANDING ON A FULLY DILUTED BASIS AT THE TIME SHARES ARE ACCEPTED FOR
PAYMENT PURSUANT TO THE OFFER AND (2) THE PURCHASER HAVING RECEIVED FUNDS,
PURSUANT TO AN EXISTING FINANCING COMMITMENT, IN AN AMOUNT SUFFICIENT TO ENABLE
THE PURCHASER TO PURCHASE ALL SHARES OUTSTANDING PURSUANT TO THE OFFER AND THE
MERGER AND HAVING OBTAINED A DEFINITIVE FINANCING COMMITMENT FOR CERTAIN BRIDGE
FINANCING TO REFINANCE CERTAIN INDEBTEDNESS OF THE COMPANY.
For purposes of the Offer, the Purchaser will be deemed to have accepted for
payment, and thereby purchased, tendered Shares if, as and when the Purchaser
gives oral or written notice to the Depositary of the Purchaser's acceptance of
such Shares for payment. Upon the terms and subject to the conditions set forth
in the Offer, payment for Shares accepted pursuant to the Offer will be made by
deposit of the aggregate purchase price therefor with the Depositary, which
will act as agent for tendering shareholders for the purpose of receiving
payment from the Purchaser and transmitting payment to such tendering
shareholders. UNDER NO CIRCUMSTANCES WILL INTEREST ON THE PURCHASE PRICE FOR
SHARES BE PAID BY THE PURCHASER BY REASON OF ANY DELAY IN MAKING SUCH PAYMENT.
In all cases, payment for Shares tendered and accepted for payment pursuant to
the Offer will be made only after timely receipt by the Depositary of (i)(A)
certificates evidencing such Shares ("Share Certificates") or (B) a timely
book-entry confirmation of the book-entry transfer of such Shares into the
Depositary's account at the Book-Entry Transfer Facility (as defined in the
Offer to Purchase), pursuant to Section 3 of the Offer to Purchase, (ii)(A) the
Letter of Transmittal (or facsimile thereof) properly completed and duly
executed or (B) an Agent's Message (as defined in the Offer to Purchase) in
connection with a book-entry transfer and (iii) any other documents required by
the Letter of Transmittal.
Except as otherwise provided in Section 4 of the Offer to Purchase, tenders of
Shares made pursuant to the Offer are irrevocable. Shares tendered pursuant to
the Offer may be withdrawn at any time prior to the Expiration Date and, unless
theretofore accepted for payment by the Purchaser pursuant to the Offer, may
also be withdrawn at any time after October 15, 1998. For a withdrawal to be
effective, a written or facsimile transmission notice of withdrawal must be
timely received by the Depositary at one of its addresses set forth on the back
cover of the Offer to Purchase. Any such notice of withdrawal must specify the
name of the person who tendered the Shares to be withdrawn, the number of
Shares to be withdrawn and (if Share Certificates have been tendered) the name
of the registered holder, if different from that of the person who tendered
such Shares. If Share Certificates evidencing Shares to be withdrawn have been
delivered or otherwise identified to the Depositary, then prior to the release
of such Share Certificates, the serial numbers shown on the particular
certificates evidencing the Shares to be withdrawn must be submitted to the
Depositary, and the signature(s) on the notice of withdrawal must be guaranteed
by an Eligible Institution (as defined in the Offer to Purchase), unless such
Shares have been tendered for the account of an Eligible Institution. If Shares
have been tendered pursuant to the procedure for book-entry transfer as set
forth in Section 3 of the Offer to Purchase, any notice of withdrawal must also
specify the name and number of the account at the Book-Entry Transfer Facility
to be credited with the withdrawn Shares, in which case a notice of withdrawal
will be effective if delivered to the Depositary by any method of delivery
described in Section 4 of the Offer to Purchase. Withdrawals of Shares may not
be rescinded and any Shares properly withdrawn will thereafter be deemed not
validly tendered for purposes of the Offer. However, withdrawn Shares may be
retendered by again following one of the procedures described in Section 3 of
the Offer to Purchase at any time prior to the Expiration Date. All questions
as to the form and validity (including time of receipt) of notices of
withdrawal will be determined by the Purchaser in its sole discretion, which
determination will be final and binding.
The term "Expiration Date" shall mean 12:00 Midnight, New York City time, on
Monday, September 14, 1998, unless and until the Purchaser, in accordance with
the terms of the Merger Agreement, shall have
<PAGE> 3
extended the period of time for which the Offer is open, in which event the
term "Expiration Date" shall mean the latest time and date at which the Offer,
as so extended by the Purchaser, shall expire. Any such extension will be
followed as promptly as practicable by a public announcement thereof not later
than 9:00 a.m., New York City time, on the next business day after the
previously scheduled Expiration Date of the Offer.
Subject to the terms of the Merger Agreement and the applicable regulations of
the Securities and Exchange Commission, the Purchaser expressly reserves the
right, in its sole discretion, at any time or from time to time, to extend the
period of time during which the Offer is open and thereby delay acceptance for
payment of, and the payment for, any Shares by giving oral or written notice of
such extension to the Depositary. During any such extension, all Shares
previously tendered and not withdrawn will remain subject to the Offer, subject
to the rights of a tendering shareholder to withdraw such Shares.
The information required to be disclosed by Rule 14d-6(e)(1)(vii) of the
General Rules and Regulations under the Exchange Act is contained in the Offer
to Purchase and is incorporated herein by reference.
The Company has provided the Purchaser with the Company's shareholder lists
and security position listings for the purpose of disseminating the Offer to
holders of Shares. The Offer to Purchase, the related Letter of Transmittal and
other relevant materials will be mailed to record holders of Shares and will be
furnished to brokers, dealers, banks, trust companies and similar persons whose
names, or the names of whose nominees, appear on the shareholder lists, or, if
applicable, who are listed as participants in a clearing agency's security
position listing, for subsequent transmittal to beneficial owners of Shares.
THE OFFER TO PURCHASE AND THE RELATED LETTER OF TRANSMITTAL CONTAIN IMPORTANT
INFORMATION WHICH SHOULD BE READ CAREFULLY BEFORE ANY DECISION IS MADE WITH
RESPECT TO THE OFFER.
Questions and requests for assistance may be directed to the Information Agent
or the Dealer Manager at their respective addresses and telephone numbers set
forth below. Requests for copies of the Offer to Purchase, the Letter of
Transmittal and other related materials may be directed to the Information
Agent, the Dealer Manager or to brokers, dealers, commercial banks or trust
companies. No fees or commissions will be payable by the Purchaser to any
broker, dealer or other person (other than the Information Agent and the Dealer
Manager) for soliciting tenders of Shares pursuant to the Offer.
The Information Agent for the Offer is:
[INNISFREE LOGO]
501 Madison Avenue, 20th Floor
New York, New York 10022
CALL TOLL FREE (888) 750-5834
BANKS AND BROKERS CALL: (212) 750-5833 (COLLECT)
The Dealer Manager for the Offer is:
BEAR, STEARNS & CO. INC.
245 Park Avenue
New York, New York 10167
CALL TOLL FREE: (888) 933-8901
August 17, 1998
<PAGE> 1
[KEY ENERGY GROUP, INC. LETTERHEAD] EXHIBIT (a)(9)
NEWS RELEASE
FOR IMMEDIATE RELEASE
KEY ENERGY GROUP COMMENCES $17.50 PER SHARE TENDER OFFER FOR
ALL OUTSTANDING SHARES OF DAWSON PRODUCTION SERVICES
EAST BRUNSWICK, NJ -- August 17, 1998 -- Key Energy Group, Inc. (NYSE: KEG)
announced today that its wholly-owned subsidiary, Midland Acquisition Corp., has
commenced a cash tender offer for all the outstanding shares of Dawson
Production Services, Inc. (NYSE: DPS) common stock at a price of $17.50 per
Dawson share. The tender offer is scheduled to expire at 12:00 midnight, New
York City time, on Monday, September 14, 1998, unless extended.
Following the completion of the tender offer, Key intends to consummate a second
step merger in which all remaining Dawson shareholders will also receive the
same cash price paid in the tender offer.
As previously announced, on August 11, 1998, Key, Midland and Dawson signed a
definitive merger agreement for the acquisition of Dawson for $17.50 per share
in cash. Dawson's Board of Directors has unanimously approved the tender offer
and the merger and determined that the tender offer and the merger are in the
best interests of Dawson's shareholders. The Dawson Board unanimously
recommended that Dawson shareholders accept the Key offer and tender their
shares. Dawson will mail its formal recommendation to shareholders at the same
time Key mails its tender offer materials.
The tender offer is conditioned upon, among other things, (1) there being
validly tendered and not withdrawn before the expiration date, a number of
shares, which when added to the number of shares beneficially owned by Key and
Midland, will represent a majority of the total number of outstanding shares of
Dawson on a fully diluted basis at the time the shares are accepted for payment
pursuant to the offer; (2) Key and Midland having received funds pursuant to an
existing financing commitment, in an amount sufficient to enable Key and Midland
to purchase all shares outstanding pursuant to the offer and the merger and
having obtained a definitive financing commitment for certain bridge financing
to refinance certain indebtedness of Dawson; and (3) expiration or termination
of any applicable waiting period under the Hart-Scott-Rodino Antitrust
Improvements Act of 1976. The complete terms and conditions of the tender offer,
including the financing arrangements, are set forth in the offering documents
being filed today with the Securities and Exchange Commission.
Bear, Stearns & Co. Inc. is acting as Dealer Manager for Key's offer and
Innisfree M&A Incorporated is acting as Information Agent.
Key Energy Group, Inc. is a holding company with diversified energy operations,
including well servicing, oilfield services, contract drilling and oil and
natural gas production. Key has operations in most major domestic onshore
producing regions and in Argentina.
###
CONTACTS:
Key Energy Group, Inc.: Abernathy MacGregor Frank:
Jim Dean Dan Katcher / Matt Sherman
(732) 247-4822 (212) 371-5999
<PAGE> 1
EXHIBIT (b)(1)
CONFIDENTIAL
PNC CAPITAL MARKETS, INC.
One PNC Plaza, Third Floor
249 Fifth Avenue
Pittsburgh, Pennsylvania 15222-2727
PNC BANK, NATIONAL ASSOCIATION
One PNC Plaza, Third Floor
249 Fifth Avenue
Pittsburgh, Pennsylvania 15222-2727
$550 Million Senior Secured Credit Facilities
Commitment and Engagement Letter
--------------------------------
August 17, 1998
Francis D. John
Chairman of the Board, President and
Chief Executive Officer
Key Energy Group, Inc.
Two Tower Center, Twentieth Floor
East Brunswick, New Jersey 08816
Stephen E. McGregor
Executive Vice President and Chief Financial Officer
Key Energy Group, Inc.
Two Tower Center, Twentieth Floor
East Brunswick, New Jersey 08816
Gentlemen:
It is our understanding that Key Energy Group, Inc. (the "Company")
proposes to acquire (the "Acquisition") Dawson Production Services, Inc.
("Dawson"). We understand that the Acquisition would be accomplished by means
of a tender offer followed by a merger between Dawson and the Company or a
wholly owned subsidiary of the Company. As consideration for the Acquisition,
the shareholders of Dawson will receive consideration in the form of cash in an
amount equal to $17.50 per share and after giving effect to the Acquisition,
Dawson will be a wholly owned subsidiary of the Company or the Company will
succeed to all the assets and liabilities of Dawson.
<PAGE> 2
Page 2.
We understand that the Company will require up to $550,000,000 of
senior secured financing to (i) consummate the Acquisition, (ii) refinance
certain existing indebtedness of the Company and Dawson, (iii) provide working
capital for the Company and its subsidiaries, and (iv) pay fees and expenses in
connection with the transaction contemplated hereby. We further understand that
financing may be required in connection with puts which may be made of Dawson's
9-3/8% Notes as a result of a change of control occurring in connection with the
Acquisition (the "Put Financing"). We understand that a portion of such
financing will be accomplished by (i) the issuance and sale by the Company of up
to $150,000,000 of long-term unsecured senior subordinated notes (the "Senior
Subordinated Notes") or (ii) the issuance and sale of senior bridge
subordinated notes (the "Subordinated Put Notes") which will subsequently be
refinanced with an issuance of Senior Subordinated Notes as described in the
Summary (as defined below). It is our understanding that with respect to the
$550,000,000 of senior secured financing, the Company has requested that PNC
Bank, National Association ("PNC Bank" or the "Bank") underwrite and PNC
Capital Markets, Inc. ("PNC Capital Markets") syndicate all of such senior
secured credit facilities (the "Financing").
We are pleased to inform you that PNC Bank commits to provide the
entire amount of the Financing described in the Summary of Terms and Conditions
attached hereto as Exhibit A (the "Summary"), subject to the terms and
conditions referred to in this letter and the Summary. The Summary includes a
description of the principal terms of the proposed credit facilities connected
with the Financing, and is intended as a framework for the documentation and as
a basis for further discussion of the Financing's terms, as appropriate. The
Financing will be documented in a definitive credit agreement (the "Credit
Agreement") and other agreements, instruments, certificates, and documents
called for by the Credit Agreement or which the Bank may otherwise require
(collectively, the "Credit Documents"), to be delivered at the closing of the
Financing (the "Closing"). The terms of the Credit Documents shall prevail over
the terms of this letter.
PNC Bank's obligations are conditioned on the execution and delivery
of the Credit Documents to the Bank in form and content satisfactory to the
Bank. Because not all of the terms can be set forth in the Summary, a failure by
the Bank or the Company to agree on the definitive terms of the Credit Documents
will not constitute a breach of this commitment. This letter is also subject to
acceptance by the Company as provided below and the statutory and other
requirements under which the Bank is governed.
PNC Bank and PNC Capital Markets shall be entitled, after
consultation with you, to change the pricing, structure and terms of the
proposed Financing if the syndication has not been completed and if PNC Bank and
PNC Capital Markets determine that such changes are advisable in order to insure
a successful syndication of the proposed Financing (provided that the total
amount of the Financing remains unchanged). PNC Bank's commitment hereunder is
subject to the agreement in this paragraph.
<PAGE> 3
Page 3.
In addition to the terms and conditions set forth in the Summary, PNC
Bank's commitment to provide the proposed Financing and PNC Capital Markets
agreement to perform the services described herein are further subject to (i)
there being no material adverse change since March 31, 1998 in the financial
condition, business, operations, properties, or prospects of the Company and
its subsidiaries and Dawson; and (ii) the non-occurrence of any material
adverse change in the loan syndication or capital market conditions generally,
which would materially affect the syndication efforts in respect of any portion
of the Financing. The Company acknowledges that PNC Bank may, in its discretion
(with reasonable prior consent of the Company), retain experts or consultants
in connection with the transaction contemplated hereby and the Financing.
This letter is issued in reliance on the information provided to the
Bank by the Company in connection with the Company's request for the Financing
and the information in any supporting document and material. PNC Bank may
terminate this commitment if there is any material misrepresentation or material
inaccuracy in the information or any failure to include material information
with the request.
This commitment letter may not be assigned by the Company and no
rights of the Company hereunder may be transferred without the prior written
consent of PNC Bank. The Bank may elect to (a) assign a portion of its rights
and obligations hereunder so that the assignee may become a party to the Credit
Agreement and (b) arrange for the sale of participation interests in its
commitment hereunder and/or loans made by it as contemplated hereby. In the
event of any assignment referred to in (a) above, the assignor shall be released
of all obligations assumed by the assignee.
PNC Bank and any assignees or participants will in no event be
responsible or liable for any consequential damages that may be incurred or
alleged by any person as a result of this commitment. No modification or waiver
of any of the terms and conditions of this commitment will be valid and binding
unless agreed to in writing by PNC Bank. When accepted, this letter (including
the Fee Letter referenced below) constitutes the entire agreement between PNC
Bank and the Company concerning the Financing and replaces all prior
understandings, statements and negotiations, including without limitation (i)
the commitment and engagement letters, dated June 2, 1998, July 8, 1998 and
August 3, 1998, among the Company, PNC Bank and PNC Capital Markets and (ii)
the fee letters, dated June 2, 1998, July 8, 1998 and August 3, 1998, among the
Company, PNC Bank and PNC Capital Markets (collectively, the "Original
Letters").
PNC Bank's commitment hereunder will expire on August 18, 1998,
unless on or before that date the Company signs and returns the enclosed copy
of this letter along with the fee letter dated as of the date hereof (the "Fee
Letter") and the fee specified in the Fee Letter to be paid on the date you
accept this letter. Once accepted, PNC Bank's commitment under this letter will
expire on December 31, 1998 if the Financing has not closed on or before that
date. Both of these expiration dates may only be extended in writing by PNC
Bank.
<PAGE> 4
Page 4.
The remainder of this letter sets forth our mutual understanding as
to the services to be performed by PNC Capital Markets in syndicating the
Financing, the obligations of the Company, compensation to PNC Bank and PNC
Capital Markets as well as the general terms and conditions of PNC Capital
Markets' engagement (the "Engagement").
1. Services to be Performed by PNC Capital Markets:
a. PNC Capital Markets will assist the Company in
finalizing the terms and conditions of the
Financing based upon information supplied by,
among others, the Company, Dawson (as available
to the Company), consultants, appraisers and
prospective lenders. Proposed terms and
conditions of the Financing as of the date hereof
are summarized in the Summary.
b. After the Company executes this letter, PNC
Capital Markets will prepare and distribute a
Confidential Information Memorandum (the
"Memorandum") for the purpose of approaching
lenders to provide a portion of the Financing.
PNC Capital Markets will not distribute the
Memorandum to any party without the consent of
the Company, which consent shall not be
unreasonably withheld.
c. PNC Capital Markets shall introduce PNC Bank and
other interested lenders to the Company and
assist the Company with any and all negotiations
with such interested lenders concerning the
Financing. The Company hereby consents to the
transfer of information regarding the Company and
its subsidiaries and Dawson between PNC Capital
Markets, PNC Bank and their affiliates and other
prospective lenders.
2. Obligations of the Company:
a. The Company agrees to provide PNC Capital Markets
and its legal counsel and consultants with such
information and access to the officers,
directors, employees, accountants and legal
counsel of the Company as may be requested by it
for the purpose of preparing the Memorandum
together with any supplemental information which
the lenders may reasonably require. The
information may include, but may not be limited
to, general industry information, information
about the Company and Dawson (as available to the
Company) and subsidiaries, historical financial
statements and financial projections over the
term of the Financing.
b. The Company agrees that prior to delivery of the
Memorandum to any other lender, a senior officer
of the Company will review the Memorandum and
will provide a letter stating that to the best of
his or her knowledge, the Memorandum is complete
and correct in all material
<PAGE> 5
Page 5.
respects and does not contain any untrue statements
of a material fact, or omit to state any matter
necessary to make the Memorandum not materially
misleading.
c. Until the Closing, the Company agrees that
neither the Company nor any of its subsidiaries
shall enter into any other credit facilities or
issue any debt (other than the Subordinated Put
Notes and the Senior Subordinated Notes, subject to
the proviso below), whether syndicated or publicly
or privately placed, if such facility or issue
might, in PNC Capital Markets' opinion, have a
detrimental effect on the successful completion of
the transaction described herein, and will advise
PNC Capital Markets immediately if any issue or
facility is contemplated; provided however, in
connection with the syndication, placement and/or
issuance of the Subordinated Put Notes and the
Senior Subordinated Notes, the arranger, placement
agent and/or manager with respect thereto must
coordinate its syndication and/or placement with PNC
Capital Markets and agree to consult and to reach
mutual agreement with PNC Capital Markets with
respect to such issuance.
3. Expenses and Compensation:
a. PNC Bank and PNC Capital Markets shall be
reimbursed from time to time by the Company upon
request for all reasonable out-of-pocket expenses
which they may incur while performing services
hereunder, including in connection with the
negotiation, preparation, due diligence,
execution and delivery of this letter, the
Original Letters, the Credit Documents and other
documentation and any initial assignment or
participation of PNC Bank's interests herein.
These include, without limitation, reasonable
fees and expenses of legal counsel, appraisers
and consultants. Such reimbursement shall not be
contingent upon the Closing or execution of the
Credit Documents.
b. The Company agrees to pay to lenders, including
PNC Bank, the fees set forth in the Summary and
to PNC Bank and PNC Capital Markets the fees set
forth in the Fee Letter.
4. General:
a. PNC Bank, PNC Capital Markets and the Company
each confirms that it has the requisite power and
authority to enter into this letter and to
perform its undertakings hereunder and that any
action taken by it in connection with the
Financing will be taken in compliance with
applicable federal, state and foreign securities
laws as such laws apply to it or its action.
b. PNC Capital Markets will use reasonable efforts
to provide the advice, assistance and services
described above. PNC Capital Markets does not,
however, warrant, represent, promise, guarantee
or otherwise provide assurances that the
Financing will be closed.
c. By executing this letter, the Company agrees to
indemnify and hold
<PAGE> 6
page 6.
harmless PNC Bank, PNC Capital Markets or any
affiliate thereof and any assignees or participants of
PNC Bank and their respective officers, directors,
employees, affiliates and agents from and against any
and all losses, claims, damages, liabilities, costs
and expenses (including without limitation reasonable
fees and expenses of counsel) which may be incurred by
any of them in connection with any investigation,
litigation or other proceeding (regardless of whether
any indemnified person is a party thereto) arising in
connection with this letter, the Acquisition, the
Original Letters, the Engagement or the Financing,
other than for their own gross negligence or wilful
misconduct. The Company's obligations hereunder shall
be in addition to any other liability it may otherwise
have.
d. PNC Capital Markets' services hereunder may be
terminated by PNC Capital Markets or the Company upon
thirty business days' written notice to the other
party, without liability or continuing obligations to
the other party except as provided below.
Notwithstanding any termination of such services or
this letter, PNC Capital Markets and PNC Bank shall be
entitled to the expenses and fees described in
paragraphs 3(a) and 3(b) above, and the Company's
indemnification obligation under paragraph 4(c) hereof
will continue. In the event PNC Capital Markets'
services are terminated, the provisions herein and in
the Fee Letter relating to PNC Bank and its commitment
provided hereunder shall remain in effect.
e. Upon closing, PNC Capital Markets shall be
entitled to place a "tombstone" advertisement in
various publications subject to the Company's
approval of the contents of such advertisement,
which approval shall not be unreasonably withheld
or delayed.
The terms contained in this letter and the Summary are confidential
and, except for disclosure to the Company's and Dawson's board of directors, the
Company's officers and employees, professional advisors retained by the Company
and Dawson in connection with this transaction or as may be required by law, may
not be disclosed in whole or in part to any other person or entity without our
prior written consent. This letter is solely for the benefit of the Company and
no other person or entity shall obtain any rights hereunder or be entitled to
rely or claim reliance upon the terms and conditions hereof.
This letter may be executed in any number of counterparts, each of
which shall be an original, and all of which, when taken together, shall
constitute one agreement. Delivery of an executed signature page of this letter
by facsimile transmission shall be effective as delivery of a manually executed
counterpart hereof.
This letter shall be governed by and construed in accordance with the
laws of the State of New York.
<PAGE> 7
Page 7.
If the foregoing accurately sets forth your understanding, please
indicate your acceptance hereof by signing the enclosed copy of this letter and
returning it to us by the date referenced above. We are pleased to have this
opportunity and very much look forward to working with you.
Sincerely,
PNC BANK, NATIONAL ASSOCIATION
By: /s/ Thomas K. Grundman
-------------------------------
Name: Thomas K. Grundman
Title: Senior Vice President
PNC CAPITAL MARKETS, INC.
By: /s/ Douglas E. Shaffer
-------------------------------
Name: Douglas E. Shaffer
Title: Senior Vice President and
Managing Director
Agreed to and accepted:
KEY ENERGY GROUP, INC.
By: /s/ Stephen E. McGregor
--------------------------
Title: Executive Vice President
and Chief Financial Officer
Date: August 17, 1998
------------------------
<PAGE> 8
EXHIBIT A
KEY ENERGY GROUP, INC.
$550,000,000 SENIOR CREDIT FACILITIES
SUMMARY OF TERMS AND CONDITIONS
August 17, 1998
Key Energy Group, Inc. ("Key" or the "Company") proposes to acquire (the
"Acquisition") all of the common stock of Dawson. The Acquisition will be
accomplished by means of a tender offer (the "Tender Offer") followed by a
merger (the "Back-End Merger") between Dawson and the Company or a wholly owned
subsidiary of the Company. As used herein, "Acquisition Date" means the date
on which Key acquires the Dawson common stock tendered pursuant to such tender
offer, and "Merger Date" means the date of consummation of the Back-End Merger.
In order to finance the Acquisition, to refinance certain existing indebtedness
of the Company and Dawson and to finance the continuing operations of Key, Key
will require up to $550 million in senior secured credit facilities (the
"Senior Credit Facilities"). Set forth below is a statement of the terms and
conditions for the Senior Credit Facilities:
I. PARTIES
Borrower The Company.
Guarantors Each of the Company's direct and indirect
existing domestic subsidiaries as provided in
the Existing Credit Agreement (as defined
below), and on and after the Merger Date Dawson
and the domestic subsidiaries thereof (together
with the Company, the "Loan Parties").
Advisor and Arranger PNC Capital Markets, Inc. (in such capacity,
the "Arranger").
Administrative Agent PNC Bank, National Association ("PNC" or the
"Agent").
Banks Certain existing lenders party to the Credit
Agreement, dated as June 6, 1997, as amended and
restated through November 6, 1997, among Key, the
several banks and other financial institutions or
other entities from time to time party thereto,
PNC and the Arranger (the "Existing Credit
<PAGE> 9
2
Agreement") and new lending institutions
acceptable to the Company (the "Banks").
II. SENIOR SECURED
CREDIT FACILITIES Up to $550,000,000 in aggregate, comprised of a
Revolving Credit Facility and Term Loan
Facilities.
A. REVOLVING CREDIT FACILITY
Amount Initially, up to $550,000,000 and on the
Merger Date, the aggregate amount of the
Revolving Credit Facility will automatically be
reduced by an amount (the "Term Loan Aggregate
Amount") equal to up to $300,000,000. Any of
such loans herein referred to as "Revolving
Credit Loans."
Letters of Credit A sublimit of $20,000,000 of the Revolving
Credit Facility shall be available for the
issuance of letters of credit (the "Letters of
Credit") by a Bank acceptable to the Company
and the Agent (the "Issuing Bank"). No Letter
of Credit shall have an expiration date after
the earlier of (a) one year after the date of
issuance and (b) five business days prior to
the Maturity Date (defined below), provided
that any Letter of Credit with a one-year tenor
may provide for the renewal thereof for
additional one-year periods (which shall in no
event extend beyond the date referred to in
clause (b) above).
Drawings under any Letter of Credit shall be
reimbursed by the Company (whether with its own
funds or with the proceeds of Revolving Credit
Loans) on the same business day. To the extent
that the Company does not so reimburse the
Issuing Bank, the Banks under the Revolving
Credit Facility shall be irrevocably and
unconditionally obligated to reimburse the
Issuing Bank on a pro rata basis.
Maturity The earliest to occur of (i) 150
days after the Acquisition Date or (ii)
termination or abandonment by the Company of
the Acquisition (the "Maturity Date");
provided, however, that in the event that the
Merger Date occurs on or before
<PAGE> 10
3
the Maturity Date and the Term Loans are made to
the full extent of the Term Loan Aggregate Amount
(as defined above), the Maturity Date will
automatically be extended to five years from the
initial closing date of the Senior Credit
Facilities. If the Acquisition is accomplished by
a One Step Merger, the Maturity Date will be the
date five years from the closing date of the
Senior Credit Facilities.
Availability; Repayment The Revolving Credit Facility shall be
available on a revolving basis from the period
commencing on the Acquisition Date and ending
on the Maturity Date; provided, that the amount
of the Revolving Credit Facility will be
reduced on each anniversary of the Acquisition
Date, commencing with the third such
anniversary, by the amount set forth opposite
such anniversary below:
<TABLE>
<CAPTION>
Anniversary Amount
----------- ------
<S> <C>
3 $ 25,000,000
4 $ 25,000,000
5 $ 0
</TABLE>
Use of Proceeds (a) Up to $490,000,000 in the aggregate of the
Revolving Credit Facility may be used on and
after the Acquisition Date (i) to fund the
Acquisition and to pay transaction costs
associated therewith, (ii) to refinance
indebtedness of Key, Dawson and their respective
subsidiaries (including, without limitation the
Existing Credit Agreement), and (iii) to pay fees
and expenses associated with the Senior Credit
Facilities.
(b) The balance of the Revolving Credit
Facility may be used for working capital,
capital expenditures, Permitted Acquisitions
(as defined in the Existing Credit Agreement)
and general corporate purposes of the Company
and its subsidiaries from time to time on and
after the Acquisition Date.
<PAGE> 11
4
B. TERM LOAN FACILITIES
Types and Amount
of Facilities Term Loan Facilities in the aggregate amount of
up to $300,000,000 (the loans thereunder, the
"Term Loans"), available in single draw on the
Merger Date, as follows:
Tranche A Term Loan Facility:
A five year term loan facility (the "Tranche A
Term Loan Facility") in an aggregate amount of
up to $150,000,000. The Tranche A Term Loan
Facility shall be repayable in quarterly
amounts as a percentage of the total Tranche A
Term Loan as follows:
<TABLE>
<CAPTION>
Percent Percent
Payable Payable
Date Quarterly Annually
---- --------- --------
<S> <C> <C>
Year 1 0% 0%
Year 2 4% 16%
Year 3 6% 24%
Year 4 7% 28%
Year 5 8% 32%
</TABLE>
Tranche B Term Loan Facility
A six year term loan facility (the "Tranche B
Term Loan Facility") in an aggregate amount of
up to $150,000,000. The Tranche B Term Loan
shall be repayable in quarterly installments as
a percentage of the total Tranche B Term Loan
as follows:
<TABLE>
<CAPTION>
Percent Percent
Payable Payable
Date Quarterly Annually
---- --------- --------
<S> <C> <C>
Year 1-5 0.25% 1%
Year 6 23.75% 95%
</TABLE>
Additionally, at no time shall the maturity of
the Tranche B Term Loan Facility be less than
90 days prior to the maturity of the Company's
$216,000,000 Convertible Subordinated Notes due
2004.
The aggregate amount of Term Loans
constituting Tranche A Term Loans and the Tranche
B Term Loans, respectively, shall be determined
by the Agent in its sole discretion after
consultation with the Borrower.
<PAGE> 12
5
Use of Proceeds The Term Loans shall be used to repay
advances under the Revolving Credit Facility
and to pay for the balance of shares acquired
in the Acquisition.
III. CERTAIN PAYMENT PROVISIONS
Interest Rates and
Letter of Credit Fees Interest rates shall be based on the Company's
Consolidated Leverage Ratio, as defined in the
Existing Credit Agreement, per the attached
Pricing Grid A. Upon the issuance of new
equity in a minimum amount of $75,000,000,
Pricing Grid B becomes effective; provided that
if such new equity is issued in connection with
acquisitions, Pricing Grid B will not become
effective until the ratio of Consolidated Total
Indebtedness to the sum of Consolidated Total
Indebtedness plus Consolidated Net Worth (as
such terms are defined in the Existing Credit
Agreement) is equal to or less than 75% (the
"Minimum Equity Event").
From the Acquisition Date until the calculation
for the first full fiscal quarter completed
after the Acquisition Date, Level VI of Pricing
Grid A will be in effect.
Base Rate Option The Base Rate is the higher of (1) PNC Bank's
Prime rate or (2) the Federal Funds rate plus
1/2%. Interest on Base Rate borrowings is
calculated on an actual/365 or 366 day basis
and is payable quarterly.
LIBOR Option Interest on LIBOR borrowings is calculated on
an actual/360 day basis and is payable the
earlier of quarterly or on the last day of each
interest period. LIBOR advances will be
available for periods of 1,2,3 or 6 months.
LIBOR pricing will be adjusted for any
statutory reserves.
The Company may have no more than 12 borrowing
tranches, including the Base Rate tranche, at
any one time.
<PAGE> 13
6
Default Rate Overdue principal or interest shall bear
interest at 2% over the otherwise applicable
rate; overdue commitment fees shall bear
interest at 2% over the rate applicable to the
Base Rate pricing option.
Letters of Credit The Company shall pay letter of credit fees
equal to the then applicable spread above LIBOR
on the aggregate face amount of Letters of
Credit issued under the Revolving Credit
Facility to each Bank quarterly in proportion
to such Bank's commitment. In addition, the
Company shall pay the Issuing Bank, a fee of
12.5 basis points, payable quarterly, on the
aggregate face amount of such Letters of Credit.
Yield Protection The Company shall pay the Banks such additional
amounts as will compensate the Banks in the
event applicable law, or change in law,
subjects the Banks to reserve requirements,
capital requirements, taxes (except for taxes
on the overall net income of the Banks) or
other charges which increase the cost or reduce
the yield to the Banks, under customary yield
protection provisions.
Interest Rate
Protection A minimum of 50% of Consolidated Total Debt (as
defined in the Existing Credit Agreement) will
be hedged on terms satisfactory to the Agent
within 90 days of the closing of the Senior
Credit Facilities.
Commitment Fee A per annum fee on the unused amount of the
Revolving Credit Facility payable to each Bank
quarterly in arrears in proportion to such
Bank's commitment, per the attached Pricing
Grid.
Collateral First priority perfected lien on substantially
all of the tangible and intangible assets (as
provided in the Existing Credit Agreement) of
the Company and its existing direct and
indirect domestic operating subsidiaries
including, without limitation, intellectual
property and real property as well as all of
the capital stock of each of the Company's
existing direct and indirect subsidiaries which
are Guarantors. On the Merger Date the
Collateral shall also include a first priority
perfected lien on all tangible and intangible
assets of Dawson and its subsidiaries and all
of the capital stock of Dawson and its
subsidiaries. Subject to compliance with
Regulation U of the Board of Governors
<PAGE> 14
7
of the Federal Reserve System, the Agent may
require the Company to pledge all capital stock
of Dawson owned (or being acquired) by the
Company and its Subsidiaries.
After the Merger (if Dawson merges into the
Company), the Collateral will also secure on a
pari passu basis all of the Company's
obligations (as successor by merger to Dawson)
under Dawson's 9-3/8% Notes.
Expenses Reasonable out-of-pocket expenses incurred by
the Agent shall be for the account of the
Company. These include fees and expenses for
the Agent's legal counsel.
Optional Prepayments;
Voluntary Reductions Outstandings or commitments under the Senior
Credit Facilities may be prepaid or terminated,
in whole or in part, at the Company's option,
subject to reimbursement of any costs
associated with prepayments of LIBOR advances
or any other provisions contained in the credit
agreement. Voluntary reductions of the
commitment under the Revolving Credit Facility
will be in minimum amounts of $5,000,000.
Optional prepayments of the Term Loans shall be
applied to the Tranche A Term Loans and the
Tranche B Term Loans ratably and shall be
applied ratably to the remaining unpaid
scheduled amortization payments thereof.
Notwithstanding the foregoing, so long as any
Tranche A Term Loans are outstanding, each
holder of Tranche B Term Loans shall have the
right to refuse all or any portion of such
prepayment allocable to its Tranche B Term
Loans, and the amount so refused will be
applied to prepay the Tranche A Term Loans.
Mandatory
Prepayments 100% of the Net Cash Proceeds from up to
$75,000,000 of equity offerings (whether such
equity is sold in a private placement or a
public offering) and 75% of the Net Cash
Proceeds from equity offerings (whether such
equity is sold in a private placement or a
public offering) in excess of $75,000,000
shall be applied to reduce outstandings under
the Senior Credit Facilities.
Beginning with the fiscal year ending June 30,
1999, mandatory prepayments equal to 50% of
Excess Cash Flow
<PAGE> 15
8
(to be defined) shall be required; provided that
upon occurrence of the Minimum Equity Event
mandatory prepayments from Excess Cash Flow will
not be required until the fiscal year ending June
30, 2001. Notwithstanding the foregoing, if the
Consolidated Leverage Ratio is less than 3.5 to 1
mandatory prepayment from Excess Cash Flow will
not be required.
Mandatory prepayments in connection with the
sale of Odessa shall be payable as provided in
the Existing Credit Agreement.
All mandatory prepayments shall be applied
first to the outstanding Term Loans, then to
the reduction of the Revolving Credit Facility
commitments to no less than $200,000,000. Each
such prepayment of Term Loans shall be applied
to the Tranche A Term Loans and the Tranche B
Term Loans ratably and shall be applied ratably
to the remaining unpaid scheduled amortization
payments thereof. Notwithstanding the
foregoing, so long as any Tranche A Term Loans
are outstanding, each holder of Tranche B Term
Loans shall have the right to refuse all or any
portion of such prepayment allocable to its
Tranche B Term Loans, and the amount so refused
will be applied to prepay the Tranche A Term
Loans.
IV. REPRESENTATIONS AND WARRANTIES
Representations and Warranties as provided in
the Existing Credit Agreement unless
specifically modified herein:
1. Financial Condition.
2. No Material Adverse Effect.
3. Corporate Existence; Compliance with Law
(including, without limitation, applicable
Federal Reserve regulations and margin
rules).
4. Corporate Power; Authorizations;
Enforceable Obligations
<PAGE> 16
9
5. No Legal Bar.
6. No Material Litigations.
7. No Default.
8. Ownership of Property; Liens.
9. Intellectual Property.
10. No Burdensome Restrictions.
11. Taxes.
12. Federal Regulations.
13. ERISA.
14. Investment Company Act; Other Regulations.
15. Subsidiaries.
16. Purpose of Loans; Limitations on Use.
17. Environmental Matters.
18. Accuracy of Information.
19. Security Documents.
20. Solvency.
21. Labor Matters.
22. Indenture.
23. Excluded Subsidiaries.
24. Oil and Gas Properties.
25. Year 2000 compliance.
26. Merger with Dawson.
<PAGE> 17
10
Other customary Representations and Warranties
as appropriate and in the Existing Credit
Agreement.
V. CONDITIONS PRECEDENT TO LENDING
A. Conditions Precedent
to Closing and
Lending on
Acquisition Date The availability of the Senior Credit
Facilities and the making of Revolving Credit
Loans on the Acquisition Date shall be
conditioned upon satisfaction, in form and
substance satisfactory to the Agent and the
Banks, of the following conditions:
1. The per share acquisition price for the
common stock of Dawson shall not be more
than $17.50 per share and the total
purchase price for all outstanding capital
stock of Dawson shall not exceed
approximately $202,000,000.
2. (a) The Company shall have received up to
$150,000,000 (but not less than the aggregate
principal amount of Dawson's 9-3/8% Notes) of
net cash proceeds from the issuance of senior
unsecured subordinated notes with an initial
redemption of not less than one year following
the final maturity of the Tranche B Term Loans
and with an average maturity of not less than
nine years and on terms and conditions
customary for the high-yield market and
satisfactory to the Agent (the "Senior
Subordinated Notes") or (b) the Company shall
have in full force and effect an unsecured
subordinated bridge credit facility (the
"Subordinated Put Facility") in an amount
equal to at least the aggregate principal
amount of Dawson's 9-3/8% Notes, and the terms
and provisions of the Subordinated Put
Facility shall be acceptable to the Agent
(including, without limitation, the conditions
for funding under the Subordinated Put
Facility and terms of conversion of the notes
under the Subordinated Put Facility into long
term subordinated exchange notes (such
exchange notes having terms and conditions
customary for the high-yield market and
satisfactory to the Agent) if the Subordinated
Put Facility is not paid by an agreed upon
date). In addition, in connection with the
Subordinated Put Facility the Company shall
have received an engagement letter providing
for the refinancing of the Subordinated Put
Facility (and if appropriate, other
indebtedness of the Company) from the proceeds
of the issuance of Senior Subordinated
<PAGE> 18
11
Notes. The proceeds of the Senior Subordinated
Notes and/or the Subordinated Put Facility
shall be held in accordance with
arrangements satisfactory to the Agent for
the payment of Dawson's 9-3/8% Notes.
3. (i) Dawson shall have entered into definitive
documentation providing for the Merger (the
"Merger Documentation"), which shall be in
form and substance satisfactory to the
Agent; no provision thereof shall have been
waived, amended, supplemented or otherwise
modified in a manner which could, in the
opinion of the Agent, reasonably be
expected to be materially adverse to the
rights or interest of the Agent or the
Banks; and (ii) the Board of Directors of
Dawson shall have approved the Merger and
such approval shall not have been withdrawn.
4. All required actions shall have been taken
so that (a) the applicable state
anti-takeover law(s) shall be inapplicable
to the Acquisition and (b) any preferred
stock purchase rights or other "poison
pill" arrangements shall not have become,
and shall not become, exercisable.
5. Key shall have acquired at least 51% of
the shares of the common stock of Dawson
(or such higher percentage of the common and
other capital stock of Dawson as shall be
required under the organizational documents
of Dawson and applicable law in order to,
without the affirmative vote of any other
holder of capital stock of Dawson, (a) permit
the Merger to be consummated on or prior to
the date which is 150 days after the
Acquisition Date and (b) immediately appoint
a majority of the Board of Directors of
Dawson or such higher number of directors as
is required to approve the Merger).
6. The Agent shall be satisfied (a) that the
Acquisition and the financing thereof do
not violate Regulations T, U or X of the
Board of Governors of the Federal Reserve
<PAGE> 19
12
System and (b) with all other matters
relating to Regulation U.
7. All documents and materials filed publicly
by the Company or Dawson in connection with
the Acquisition shall have been furnished
to the Agent and shall be reasonably
satisfactory to the Agent.
8. All necessary or required government and
third party approvals (including
Hart-Scott-Rodino clearance) in connection
with the Acquisition and the financing
contemplated hereby shall have been
obtained and shall be in full force and
effect, and all applicable waiting periods
shall have expired without any action being
taken or threatened by any competent
authority that would restrain, prevent or
otherwise impose adverse conditions on the
Acquisition or the financing thereof.
There shall be in effect no injunction or
other prohibition on the Acquisition or the
financing contemplated hereby, and no
litigation or proceeding pending or
threatened which seeks to enjoin the
Acquisition or other transaction
contemplated hereby or which could
reasonably be expected to have a material
adverse affect on the Borrower and its
subsidiaries as a whole.
9. All amounts outstanding in respect of the
Existing Credit Agreement shall have been,
or contemporaneously shall be, refinanced
under the Senior Credit Facilities.
10. The Agent and Banks shall have received
closing certificates, certified
resolutions, incumbency certificates and
corporate documents for each Loan Party.
11. Execution and delivery of all definitive
financing documents with respect to the
Senior Credit Facilities (the "Credit
Documentation") and all action taken so
that the Collateral Agent has a perfected
first priority lien on the Collateral as
contemplated under the heading "Collateral"
above.
<PAGE> 20
13
12. The Agent and Banks shall have received
such opinion(s) of counsel (including (i)
from counsel to the Company and its
subsidiaries and (ii) from such special and
local counsel as may be required by the
Agent) as are customary for transactions of
this type or as they may reasonably request.
13. There shall have been no material adverse
change in the business, assets, financial
condition, operations or prospects of the
Company and its subsidiaries taken as a
whole or Dawson and its subsidiaries taken
as a whole.
14. The Agent and Banks shall have received
evidence of required insurance.
15. Payment of all fees and expenses subject to
reimbursement.
16. The pro forma consolidated EBITDA for
Dawson and the Company for the fiscal year
ending June 30, 1998 is not less than
$170,000,000 in the aggregate.
17. The Agent and Banks shall have received a
satisfactory consolidated balance sheet of
the Company as of June 30, 1998.
18. The Agent and Banks shall have received a
five-year pro forma consolidated balance
sheet, consolidated statements of income,
retained earnings and cash flow with
assumptions used in preparing the
statements for Key and for the combined
Key-Dawson entity.
19. The Agent and Banks shall have received a
satisfactory business plan for the six
fiscal years following the closing of the
Senior Credit Facilities and a satisfactory
written analysis of the business and
prospects of the Company and its
subsidiaries for the period from the
closing of the Senior Credit Facilities
through the final maturity of the Term
Loans.
20. The Agent and Banks shall have received the
results of a recent lien search in each
relevant jurisdiction with
<PAGE> 21
14
respect to the Company and its subsidiaries,
and such search shall reveal no liens on any
of the assets of the Borrower or its
subsidiaries except for liens permitted by the
Credit Documentation or liens to be discharged
on or prior to the closing of the Senior
Credit Facilities pursuant to documentation
satisfactory to the Agent.
21. The Agent and Banks shall have received a
satisfactory solvency certificate from the
chief financial officer of the Company that
shall document the solvency of the Company
and its subsidiaries after giving effect to
the Acquisition and the other transactions
contemplated hereby.
22. The Agent and Banks shall have received a
satisfactory environmental audit with
respect to the real property owned or
leased by the Company and its subsidiaries
from a firm satisfactory to the Agent.
23. All conditions to the Company's acquiring
shares of Dawson in the Tender Offer, as
reflected in the documentation initially
filed with the Securities and Exchange
Commission, shall have been satisfied
without material amendment, waiver or
change thereof.
Other Conditions Precedent to Lending as
appropriate and in the Existing Credit
Agreement.
B. On-Going Conditions Precedent
The making of each extension of credit
under the Senior Credit Facilities,
including those on the Acquisition Date,
shall be conditioned upon:
1. The continued accuracy of all
Representations and Warranties in the
Credit Documentation (including, without
limitation, the material adverse change and
material litigation representations).
2. There being no Default or Event of Default
in existence at the time of, or after
giving effect to the making of, such
extension of credit.
<PAGE> 22
15
As used herein and in the Credit Documentation
a "material adverse change" shall mean any
event, development or circumstance that has had
or could reasonably be expected to have a
material adverse effect on (a) the Acquisition
(b) the business, property, operations,
condition (financial or otherwise) or prospects
of the Company and its subsidiaries and Dawson
taken as a whole or (c) the validity or
enforceability of any of the Credit
Documentation or the rights and remedies of the
Agent and Banks thereunder.
C. Conditions Precedent to
the Merger and
Term Loans The making of the Term Loans on the Merger Date
shall be conditioned upon (i) receipt by the
Agent of satisfactory evidence that the Merger
has been completed in accordance with the
Merger Documentation (if any) and no provision
thereof shall have been waived, amended as
supplemental or otherwise modified in a manner
which could, in the opinion of the Agent,
reasonably be expected to be adverse to the
interest of the Agent or the Banks, (ii) the
Agent having received lien searches with
respect to Dawson and its subsidiaries and all
actions being taken so that Dawson and its
subsidiaries shall have guaranteed the Senior
Credit Facilities and the Collateral Agent has
a perfected first priority lien on all the
stock and tangible and intangible assets of
Dawson and its subsidiaries, (iii) the Merger
and the financing contemplated hereby
(including granting of liens on assets of
Dawson and guarantees by Dawson' subsidiaries)
shall not cause a violation of Dawson's 9-3/8%
Notes and (iv) the Agent and the Banks having
received a satisfactory environmental audit
with respect to the real property owned or
leased by Dawson and its Subsidiaries from a
firm satisfactory to the Agent.
VI. COVENANTS AND EVENTS OF DEFAULT
A. Affirmative Covenants
1. Provide within 50 days after each of the
first three fiscal quarter ends,
consolidated balance sheets, consolidated
statements of operations and cash flows
together with a Certificate of Compliance
from the Chief Executive Officer, President
or Chief Financial Officer of the Company.
<PAGE> 23
16
2. Provide within 95 days after each fiscal
year-end, consolidated balance sheets and
consolidated statements of operations,
stockholders' equity and cash flows
together with (i) a report of an
independent certified public accountant
satisfactory to the Agent (ii) any
management letters of such accountants
addressed to the Company and (iii) a
Certificate of Compliance from the Chief
Executive Officer, President or Chief
Financial Officer of the Company.
3. Provide budgets and forecasts.
Other Affirmative Covenants as appropriate and
in the Existing Credit Agreement including,
without limitation, continuation of business
and maintenance of existence and material
rights and privileges; compliance with laws and
material contractual obligations; maintenance
of property and insurance; maintenance of books
and records; right of the Banks to inspect
property and books and records; notices of
defaults, litigation and other material events;
compliance with environmental laws; further
assurances (including, without limitation, with
respect to security interests in after-acquired
property); payment of Subordinated Put Facility
with the proceeds of Senior Subordinated Notes
no later than six months after the initial
funding under the Subordinated Put Facility.
B. Financial Covenants 1. Minimum Net Worth - The Company's Net Worth
shall not be less than a ratio to be
determined of the Net Worth at Closing plus
75% of positive quarterly net income
thereafter and 100% of the Net Cash
Proceeds of any subsequent equity offerings
and 75% of the net proceeds of the
conversion of the Company's existing and
future convertible indebtedness.
2. Consolidated Leverage Ratio - As of the end
of each fiscal quarter, the Company's
Consolidated Leverage Ratio, defined as
Consolidated Total Indebtedness less cash
and equivalents in excess of $5,000,000 to
Consolidated EBITDA (on a pro forma basis),
for the previous four quarters shall not
exceed a ratio to be determined. Step
downs in this ratio to be determined.
<PAGE> 24
17
Upon occurrence of the Minimum Equity
Event, the Consolidated Leverage Ratio
Covenant will reduce to a ratio to be
determined for the immediately following
quarter and all subsequent quarter.
3. Consolidated Senior Leverage Ratio - As of
the end of each fiscal quarter, the
Company's Consolidated Senior Leverage
Ratio, defined as Consolidated Senior
Indebtedness less cash and cash equivalents
in excess of $5,000,000 to Consolidated
EBITDA (on a pro forma basis), for the
previous four quarters shall not exceed a
ratio to be determined. Step downs in the
ratio to be determined.
Upon occurrence of the Minimum Equity
Event, the Consolidated Senior Leverage
Ratio Covenant will reduce to a ratio to be
determined for the immediately following
quarter and all subsequent quarter.
4. Consolidated Interest Coverage Ratio - As
of the end of each fiscal quarter, for the
previous four quarters, the ratio of the
Company's Consolidated EBITDA, defined for
the purposes of the Consolidated Interest
Coverage Ratio as actual reported EBITDA
for the immediately preceding four fiscal
quarters, to Consolidated Interest Expense
shall not be less than a ratio to be
determined. Step ups in this ratio to be
determined.
C. Negative Covenants Negative Covenants are as provided in the
Existing Credit Agreement unless specifically
modified herein.
1. Limitation on Indebtedness other than (i) in
connection with the Senior Credit Facility,
the Senior Subordinated Notes or the
Subordinated Put Facility and (ii) customary
exceptions to be agreed upon.
2. Limitation on Liens.
3. Limitation on Guarantee Obligations other than
customary exceptions to be agreed upon.
4. Limitation on Fundamental Changes.
5. The Company shall not convey, sell, lease,
assign, transfer or otherwise dispose of
any of its property, business or assets
except for the sale of inventory and light
vehicles in the ordinary course of business
and as otherwise provided in the Existing
Credit Agreement.
<PAGE> 25
18
6. Limitation on dividends and prohibition on
the repurchase of common stock; provided
that upon the occurrence of the Minimum
Equity Event, the Company may purchase its
common stock in an aggregate amount not to
exceed $10,000,000 as provided in the
Existing Credit Agreement.
7. Capital Expenditures - Capital expenditures
shall not exceed amounts to be determined
for each fiscal year ending 1999 through
2003 and shall include carry-overs and
adjustments for acquisitions to be agreed
upon.
8. Restriction on Investments, Loans and
Advances. Loans and advances to officers
and employees shall be allowed in an
aggregate amount not to exceed $5,000,000
at any time outstanding.
9. Limitation on Optional Payments and
Modifications of Debt Instruments (including
the Senior Subordinated Note and the
Subordinated Put Facility) and Organizational
Documents.
10. Limitation on Transactions with Affiliates.
11. Limitation on Sales and Leasebacks.
12. Limitation on Changes in Fiscal Year.
13. Limitation on Negative Pledge Clauses
14. Limitation on Lines of Business.
11. Limitation on Consolidated Lease Expense.
Other Negative Covenants as appropriate and in
the Existing Credit Agreement. If required to
comply with Regulation U, certain of the
foregoing restrictions with respect to stock of
Dawson and other margin stock shall only apply
to such stock ("Restricted Stock") to the
extent such Restricted Stock represents no more
than 25% of the value of the assets of the
Company and its Subsidiaries.
D. Events of Default 1. Payment default.
2. Breach of Representations or Warranties.
<PAGE> 26
19
3. Violation of covenant(s).
4. Cross default to other debt.
5. Bankruptcy, insolvency.
6. Change of control.
7. Failure to consummate the Merger within 150
days of the Acquisition Date.
Other Events of Default as appropriate and in
the Existing Credit Agreement.
VII. CERTAIN OTHER TERMS
A. Required Banks For the purpose of making amendments or waivers
to the Senior Credit Facilities, approval by
Banks whose commitments under the Senior Credit
Facilities aggregate at least a 51% majority
will be required. However, unless agreed to by
all Banks, no amendment or waiver shall change
the principal amount, reduce the rate of
interest or fees, postpone the scheduled
payment of any principal, interest or fees, or
change the definition of Required Banks.
B. Assignments and
Participations Banks will be permitted to assign and
participate any of its Senior Credit
Facilities. Assignments will be in minimum
amounts of $5,000,000 and assignees will be
subject to the consent of the Company and the
Agent, such consent not to be unreasonably
withheld. Voting rights to participants will
be limited to change in principal amount,
reduction of the rate of interest or fees, or
postponement of the scheduled payment of any
principal, interest or fees. Assignments will
be subject to the payment by the assigning Bank
of a $3,500 service fee to the Agent.
C. Governing Law Laws of the State of New York
D. Agent's Counsel Simpson Thacher & Bartlett
<PAGE> 27
20
PRICING GRID A
KEY ENERGY GROUP, INC.
REVOLVING CREDIT FACILITY
(BASIS POINTS)
<TABLE>
<CAPTION>
=========================================================================================================================
LEVEL I LEVEL II LEVEL III LEVEL IV LEVEL V LEVEL VI
- --------------------------------------------------------------------------------------------------------=================
BASIS FOR PRICING If the If the If the If the If the If the
Consolidated Consolidated Consolidated Consolidated Consolidated Consolidated
Leverage Ratio Leverage Ratio Leverage Ratio Leverage Ratio Leverage Ratio Leverage Ratio
is less than or is greater than is greater than is greater than is greater than is greater than
equal to 3.0 to 3.0 to 1.0 but 3.5 to 1.0 but 4.0 to 1.0 but 4.5 to 1.0 but 5.0 to 1.0.
1.0. less than or less than or less than or less than or
equal to 3.5 to equal to 4.0 to equal to 4.5 to equal to 5.0 to
1.0. 1.0. 1.0. 1.0.
- --------------------------------------------------------------------------------------------------------=================
<S> <C> <C> <C> <C> <C> <C>
REVOLVER
- -------------------------------------------------------------------------------------------------------------------------
Base Rate + 0 0 25.0 50.0 75.0 100.0
- -------------------------------------------------------------------------------------------------------------------------
LIBOR + 125.0 150.0 175.0 200.0 225.0 250.0
- -------------------------------------------------------------------------------------------------------------------------
Commitment Fee 25.0 37.5 37.5 50.0 50.0 50.0
- -------------------------------------------------------------------------------------------------------------------------
TRANCHE A
T/L FACILITY
- -------------------------------------------------------------------------------------------------------------------------
Base Rate + 0 0 25.0 50.0 75.0 100.0
- -------------------------------------------------------------------------------------------------------------------------
LIBOR + 125.0 150.0 175.0 200.0 225.0 250.0
- -------------------------------------------------------------------------------------------------------------------------
TRANCHE B
T/L FACILITY
- -------------------------------------------------------------------------------------------------------------------------
Base Rate + 100.0 100.0 125.0 125.0 125.0 150.0
- -------------------------------------------------------------------------------------------------------------------------
LIBOR + 250.0 250.0 275.0 275.0 275.0 300.0
=========================================================================================================================
</TABLE>
<PAGE> 28
21
PRICING GRID B
KEY ENERGY GROUP, INC.
REVOLVING CREDIT FACILITY
(BASIS POINTS)
<TABLE>
<CAPTION>
=========================================================================================================================
LEVEL I LEVEL II LEVEL III LEVEL IV LEVEL V LEVEL VI
- -------------------------------------------------------------------------------------------------------------------------
BASIS FOR PRICING If the If the If the If the If the If the
Consolidated Consolidated Consolidated Consolidated Consolidated Consolidated
Leverage Ratio Leverage Ratio Leverage Ratio Leverage Ratio Leverage Ratio Leverage Ratio
is less than or is greater than is greater than is greater than is greater is greater than
equal to 2.5 to 2.5 to 1.0 but 3.0 to 1.0 but 3.5 to 1.0 but than 4.0 to 4.5 to 1.0.
1.0. less than or less than or less than or 1.0 but less
equal to 3.0 to equal to 3.5 to equal to 4.0 to than or equal
1.0. 1.0. 1.0. to 4.5 to 1.0.
- -------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
REVOLVER
- -------------------------------------------------------------------------------------------------------------------------
Base Rate + 0 0 0 0 25.0 50.0
- -------------------------------------------------------------------------------------------------------------------------
LIBOR + 75.0 100.0 125.0 150.0 175.0 200.0
- -------------------------------------------------------------------------------------------------------------------------
Commitment Fee 20.0 25.0 30.0 35.0 40.0 50.0
- -------------------------------------------------------------------------------------------------------------------------
TRANCHE A
T/L FACILITY
- -------------------------------------------------------------------------------------------------------------------------
Base Rate + 0 0 0 0 25.0 50.0
- -------------------------------------------------------------------------------------------------------------------------
LIBOR + 75.0 100.0 125.0 150.0 175.0 200.0
- -------------------------------------------------------------------------------------------------------------------------
TRANCHE B
T/L FACILITY
- -------------------------------------------------------------------------------------------------------------------------
Base Rate + 75.0 75.0 75.0 100.0 100.0 100.0
- -------------------------------------------------------------------------------------------------------------------------
LIBOR + 225.0 225.0 225.0 250.0 250.0 250.0
=========================================================================================================================
</TABLE>
<PAGE> 1
EXHIBIT (b)(2)
[BEAR, STEARNS & CO. INC. LETTERHEAD]
May 8, 1998
Key Energy Group, Inc.
Two Tower Center
Twentieth Floor
East Brunswick, NJ 08816
Attention: Mr. Francis D. John
Chairman and Chief Executive Officer
Gentlemen:
We are pleased to set forth the terms of the retention of Bear,
Stearns & Co. Inc. ("Bear Stearns") by Key Energy Group, Inc. (collectively
with its affiliates, the "Acquiror").
1. Bear Stearns will assist the Acquiror as its exclusive
financial advisor and agent in connection with any Transaction (as such term
is defined below) with or involving Dawson Production Services, Inc. (the
"Company"). As used in this Agreement, the term "Transaction" shall mean (a)
any merger, consolidation, reorganization, recapitalization, business
combination or other transaction pursuant to which the Company is acquired
by, or combined with, the Acquiror or (b) the acquisition, directly or
indirectly, by the Acquiror, in a single transaction or a series of
transactions, of (i) a majority of the assets or operations of the Company or
(ii) a majority of the outstanding or newly-issued shares of the Company's
capital stock (or any securities convertible into, or options, warrants or
other rights to acquire such capital stock) (such capital stock and other
securities, options, warrants and other rights being collectively referred to
as "Company Securities") (whether by way of tender or exchange offer, open
market purchases, negotiated purchases or otherwise). The term "Acquiror"
includes (i) any person acting together with the Acquiror pursuant to a
written agreement or otherwise and (ii) any corporation, partnership or other
entity formed by the Acquiror, its shareholders or its affiliates (whether or
not the Acquiror, its shareholders or its affiliates own a majority of the
equity interests of such corporation, partnership or entity) for the purpose
of entering into a Transaction with the Company (any such corporation,
partnership or entity being hereinafter referred to separately as "Newco").
Bear Stearns' services will include advice on valuation and structuring of
any Transaction, assisting the Acquiror in the Acquiror's efforts to obtain
financing for a Transaction and assisting the Acquiror in negotiations with
the Company.
<PAGE> 2
Key Energy Group
May 8, 1998
Page 2
2. In connection with Bear Stearns' activities on the Acquiror's
behalf, the Acquiror agrees to cooperate with Bear Stearns and will furnish
to, or will cause to be furnished to, Bear Stearns any and all information
and data concerning the Acquiror, any Transaction and, to the extent
available to the Acquiror, the Company (the "Information") which Bear Stearns
deems appropriate and will provide Bear Stearns with access to the Acquiror's
officers, directors, employees, appraisers, independent accountants, legal
counsel and other consultants and advisors. To the extent that the Acquiror
has access to the officers, directors, employees, appraisers, independent
accountants, legal counsel and other consultants and advisors of the Company,
it will provide such access to Bear Stearns. The Acquiror represents and
warrants that all Information (a) made available to Bear Stearns, the Company
or any Agency by the Acquiror or (b) contained in any filing by the Acquiror
with any court or governmental or regulatory agency, commission or
instrumentality (each, an "Agency") with respect to any Transaction will, at
all times during the period of the engagement of Bear Stearns hereunder, be
complete and correct in all material respects and will not contain any
untrue statement of a material fact or omit to state a material fact
necessary in order to make the statements therein not misleading in the light
of the circumstances under which such statements are made. The Acquiror
further represents and warrants that any projections or other Information
provided by it to Bear Stearns, the Company or any Agency will have been
prepared in good faith and will be based upon assumptions which, in light of
the circumstances under which they are made, are reasonable. The Acquiror
acknowledges and agrees that, in rendering its services hereunder, Bear
Stearns will be using and relying on the Information (and information
available from public sources and other sources deemed reliable by Bear
Stearns) without any obligation for the independent verification thereof by
Bear Stearns or independent appraisal by Bear Stearns of any of the Acquiror
or the Company's assets. Bear Stearns does not assume responsibility for the
accuracy or completeness of the Information or any other information
regarding the Acquiror, the Company or any Transaction.
3. In consideration of our services pursuant to this Agreement,
Bear Stearns shall be entitled to receive, and the Acquiror agrees to pay,
Bear Stearns, the following compensation:
(a) Upon execution of this Agreement, the Acquiror shall pay
to Bear Stearns an initial fee (the "Initial Fee") in the
amount of $150,000. The Initial Fee shall be credited
against any compensation payable under subparagraphs
3(d), 3(e), and 3(f).
(b) Upon the earlier of (i) the execution by the Acquiror and
the Company of an agreement in principle or definitive
agreement with respect to a Transaction; (ii) a public
announcement or disclosure by the Acquiror concerning a
proposed Transaction, including the announcement of the
commencement of a tender offer for Company Securities; or
(iii) the first use by the Acquiror of Bear Stearns' name
in any press release or other publicly available document
or in any communication to the Company, its Board of
Directors or shareholders or in any filing (whether or
not publicly
<PAGE> 3
Key Energy Group
May 8, 1998
Page 3
available) with any Agency, the Acquiror
shall pay to Bear Stearns a commencement fee (the
"Commencement Fee") of $350,000. The Commencement Fee
shall be credited against any compensation payable under
subparagraph 3(d), 3(e), and 3(f).
(c) If a Transaction has not been consummated prior to
September 1, 1998 and Bear Stearns is still providing
advisory services to the Acquiror related to a
Transaction, the Acquiror shall pay to Bear Stearns on
September 1, 1998 an additional fee of $200,000 (the
"Continuing Fee"). In addition, the Acquiror shall pay
to Bear Stearns an additional Continuing Fee of $200,000
each three months thereafter (i.e., December 1, 1998,
March 1, 1999, etc.) as long as Bear Stearns is still
providing advisory services to the Acquiror related to a
Transaction. Any Continuing Fee paid shall be credited
against any compensation payable under subparagraph 3(d),
3(e), and 3(f).
(d) If a Transaction is consummated following commencement by
the Acquiror of a tender offer to acquire the Company's
equity securities in the absence of a signed definitive
agreement with the Company, then the Acquiror shall pay
Bear Stearns, immediately upon such consummation, a
transaction fee (the "Transaction Fee") equal to 0.8750%
of the Company's Enterprise Value (as defined below). If
a Transaction is consummated on any other basis, then the
Acquiror shall pay Bear Stearns a Transaction Fee equal
to 0.7083% of the Company's Enterprise Value. Any fees
paid pursuant to subparagraphs 3(a), 3(b), and 3(c) shall
be credited against the Transaction Fee contemplated by
this subparagraph 3(d). For purposes of this
subparagraph 3(d), Enterprise Value shall equal the value
of the total consideration paid by the Acquiror in
respect of (i) assets or operations of the Company, (ii)
Company Securities, and (iii) the assumption, directly or
indirectly (by operation of law or otherwise) of
indebtedness (including, without limitation, indebtedness
secured by assets of the Company) and including
indebtedness of the Company that remains on its (or a
successor's) balance sheet following a Transaction,
and/or repayment of indebtedness (including the cost of
any "premium" paid to repay the indebtedness) less any
Cash existing on the Company's balance sheet upon
consummation of a Transaction.
In the event a Transaction is consummated in one or more
steps, including, without limitation, by way of a
second-step merger, any additional consideration paid or
to be paid in any subsequent step in the Transaction in
respect of (x) assets or operations of the Company, (y)
Company Securities and (z) the assumption, directly or
indirectly (by operation of law or otherwise) of
indebtedness (including, without limitation, indebtedness
<PAGE> 4
Key Energy Group
May 8, 1998
Page 4
secured by assets of the Company) and including
indebtedness of the Company that remains on its (or a
successor's) balance sheet following a Transaction,
and/or repayment of indebtedness (including the cost of
any "premium" paid to repay the indebtedness) less any
Cash existing on the Company's balance sheet upon
consummation of a Transaction shall be included for
purposes of calculating Bear Stearns' fee pursuant to
this subparagraph 3(d). If all or a portion of the
consideration paid in the Transaction is other than cash
or securities, then the value of such non-cash
consideration shall be the fair market value thereof on
the date the Transaction is consummated as mutually
agreed upon in good faith by the Acquiror's Board of
Directors and Bear Stearns. If such non-cash
consideration consists of common stock, options, warrants
or rights for which a public trading market existed prior
to the consummation of the Transaction, then the value of
such securities shall be determined by the closing or
last sales price thereof on the date of the consummation
of the Transaction; provided, however, that if such
non-cash consideration consists of newly-issued,
publicly-traded common stock, options, warrants or other
rights for which no public trading market existed prior
to the consummation of the Transaction, then the value of
such securities shall be the average of the closing
prices for the 20 trading days subsequent to the fifth
trading day after the consummation of the Transaction.
In such event, the fee payable to Bear Stearns pursuant
to this subparagraph 3(d) shall be paid on the 30th
trading day subsequent to consummation of the
Transaction. If no public trading market exists for the
common stock, options, warrants or other rights issued in
the Transaction, then the value of such securities shall
be as mutually agreed upon in good faith by Acquiror's
Board of Directors and Bear Stearns. If the non-cash
consideration paid in the Transaction consists of
preferred stock or debt securities (regardless of whether
a public trading market existed for such preferred stock
or debt securities prior to consummation of the
Transaction or exists thereafter), then the value thereof
shall be the fair market value, as mutually agreed upon
in good faith by the Acquiror's Board of Directors and
Bear Stearns. If all or a portion of the consideration
payable in connection with the Transaction includes
contingent future payments, then the Acquiror shall pay
to Bear Stearns, upon consummation of such Transaction,
an additional cash fee, determined in accordance with
this subparagraph 3(d), based upon the present value of
the reasonably expected maximum amount of such contingent
future payments (as such amount is determined in good
faith between the Acquiror and Bear Stearns) using a
discount rate of 10%. However, in the event of an
installment purchase at a fixed price and a fixed time
schedule, the Acquiror agrees to pay Bear Stearns, upon
consummation of the Transaction, a cash fee determined in
accordance with this subparagraph 3(d) based upon the
present value of
<PAGE> 5
Key Energy Group
May 8, 1998
Page 5
such installment payments using a discount rate of 10%.
(e) If a Transaction is not consummated but the Acquiror
receives a "break-up" fee or any other payment as a
result of the termination or cancellation of the
Acquiror's efforts to effect a Transaction, a judgment
for damages or an amount in settlement of any dispute
relating to a Transaction, or the Acquiror's investment
in the Company, or any payment from the Company not
otherwise described in this paragraph 3, then the
Acquiror shall pay to Bear Stearns a cash fee equal to
20% of such fee, payment, judgment or amount.
Notwithstanding the above, the sum of payments received
under subparagraphs 3(a), 3(b), 3(c), 3(e), and 3(f)
shall in no event exceed the amount contemplated by
subparagraph 3(d).
(f) If a Transaction is not consummated, upon the sale,
exchange, transfer or other disposition, in a single
transaction or a series of transactions (including,
without limitation, a merger, consolidation or other
business combination of the Company with a third party)
(each, a "Disposition"), of Company Securities
beneficially owned at the time of such Disposition by
the Acquiror, then the Acquiror shall pay to Bear Stearns
an additional cash fee equal to the product resulting
from multiplying (i) 0.20 by (ii) the excess, if any, of
(A) the sum of (x) the aggregate consideration received
by the Acquiror upon the Disposition of such Company
Securities, (y) the aggregate amount of dividends and
interest received by the Acquiror in respect of such
Company Securities prior to the Disposition and (z) any
payments to the Acquiror in consideration of or in cash
settlement of any option or other right to purchase
Company Securities and any other Distributions (as such
term is defined below) received by the Acquiror in
respect of such Company Securities prior to Disposition
over (B) the sum of (a) the aggregate purchase price paid
by the Acquiror for the Company Securities involved in
such Disposition, (b) any brokerage commissions paid by
the Acquiror in connection with the purchase and sale of
such Company Securities and (c) the Acquiror's fees and
expenses relating to the Transaction (other than pursuant
to this subparagraph 3(f)). The obligation to make
payment to Bear Stearns under this subparagraph 3(f)
shall arise as, when and if Company Securities are sold,
exchanged, transferred or otherwise disposed of
representing 10% of the aggregate number of Company
Securities beneficially owned by the Acquiror at the time
immediately preceding the first Disposition of Company
Securities by the Acquiror, but the payment of the cash
fee provided for in this subparagraph 3(f) shall be in
respect of all such Company Securities disposed of by the
Acquiror. To the extent not theretofore paid, all
amounts payable to Bear Stearns under this subparagraph
3(f) shall be paid not later than ten days after the
closing of the Disposition in which the 10% level is
reached with
<PAGE> 6
Key Energy Group
May 8, 1998
Page 6
respect to fees due on such Disposition and
prior Dispositions. Thereafter, any amounts payable to
Bear Stearns shall be paid by the last day of each 30-day
period thereafter with respect to all Dispositions made
during the preceding 30-day period. In the event a
Transaction is not consummated within 180 days of the
Share Purchase Date (as defined below) and the Acquiror
continues to beneficially own any Company Securities, or
in the event the Company has completed a recapitalization
or exchange or repurchase of Company Securities or paid
an extraordinary distribution, dividend or other payment
(a "Distribution"), then the Acquiror shall pay Bear
Stearns an additional cash fee, upon the 186th day,
calculated in accordance with this subparagraph 3(f) as
if such Company Securities had been subject to a
Disposition on the 181st day, unless a Distribution has
been theretofore publicly announced but has not yet been
completed or paid, in which event such date shall be
extended until the fifth business day after such
Distribution is completed or made. For the purpose of
the calculation contemplated by the immediately preceding
sentence, the consideration deemed to have been received
by the Acquiror for such Company Securities shall be
equal to the sum of (X) the aggregate market value of the
Company Securities beneficially owned by the Acquiror as
of the 181st day after the Share Purchase Date (or such
later date as to which payment has been extended by Bear
Stearns in accordance with the immediately preceding
sentence, as the case may be) (based on the closing price
of such Company Securities on such 181st or later date),
plus (Y) the total amount of dividends, interest,
Distributions, payments and other consideration received
by the Acquiror subsequent to the date hereof in respect
of such Company Securities or in respect of securities
issued in a Distribution. In the event such dividends,
interest, Distributions, payments or other consideration
received by the Acquiror is other than cash, the value of
such dividends, interest, Distributions, payments or
other consideration shall be the value thereof as
determined in good faith by Bear Stearns and the
Acquiror. Notwithstanding the above, the sum of payments
received under subparagraphs 3(a), 3(b), 3(c), 3(e), and
3(f) shall in no event exceed the amount contemplated by
subparagraph 3(d). For purposes of this subparagraph
3(f), Share Purchase Date shall be the date on which the
Acquiror owns more than 1.0% of the shares outstanding of
the Company.
(g) Bear Stearns shall be entitled to the fees enumerated in
any preceding subparagraph of this paragraph 3 (i) upon
the occurrence, during the term, or within the Extension
Period (as defined below) after the date of termination,
of this Agreement, of any event specified in any such
subparagraph or (ii) upon the occurrence of any event
specified in any such subparagraph with respect to which
an agreement by the Acquiror was executed during the term
or within the Extension Period (as defined below)
<PAGE> 7
Key Energy Group
May 8, 1998
Page 7
after the date of termination of this Agreement. For
purposes of this subparagraph 3(g), Extension Period shall
be eighteen months except if the Acquiror achieves Board
Majority Control (as defined below) in the absence of a
Transaction, in which case the Extension Period shall be
two years. For purposes of this subparagraph 3(g), Board
Majority Control shall refer to the election or
appointment of nominees, designees or representatives of
the Acquiror to the Board of Directors of the Company so
that such nominees, designees or representatives
represent, in the aggregate, at least a majority of such
Board of Directors
4. Subsequent to the execution of this Agreement, the first time the
Acquiror requires a Financing (as defined), to consummate a Transaction or
otherwise, Bear Stearns shall have the right to act as the Acquiror's co-lead
managing underwriter (or placement agent) and joint book-running manager in
connection with raising such Financing, subject to approval of Bear Stearns'
Commitment Committee (and Executive Committee, if required) and the good
faith negotiation of customary and mutually acceptable terms and conditions.
For purposes of this paragraph 4, Financing shall include the issuance of
debt, equity, or convertible securities, raised through either the public
markets or through a private placement, and may include either registered or
unregistered securities, but excludes credit facilities and amortizing debt
issued through banks.
5. In addition to the fees described in paragraph 3 above, the
Acquiror agrees to promptly reimburse Bear Stearns, upon request from time to
time, for all reasonable out-of-pocket expenses incurred by Bear Stearns
(including reasonable fees and disbursements of counsel, and of other
consultants and advisors retained by Bear Stearns) in connection with the
matters contemplated by this Agreement.
6. The Acquiror agrees to indemnify Bear Stearns in accordance
with the indemnification provisions (the "Indemnification Provisions")
attached to this Agreement, which Indemnification Provisions are incorporated
herein and made a part hereof and which shall survive the termination,
expiration or supersession of this Agreement.
7. This Agreement shall terminate on May 4, 2000. In addition,
either party hereto may terminate this Agreement at any time upon written
notice, without liability or continuing obligation except as set forth in the
following sentence. Neither termination of this Agreement nor completion of
the assignment contemplated hereby shall affect: (i) any compensation earned
by Bear Stearns up to the date of termination or completion, as the case may
be, (ii) any compensation to be earned by Bear Stearns after termination
pursuant to paragraph 3 hereof, (iii) the reimbursement of expenses incurred
by Bear Stearns up to the date of termination or completion, as the case may
be, (iv) the provisions of paragraphs 3-14, inclusive, of this Agreement and
(v) the attached Indemnification Provisions which are incorporated herein,
all of which shall remain operative and in full force and effect.
8. The validity and interpretation of this Agreement shall be
governed by, and
<PAGE> 8
Key Energy Group
May 8, 1998
Page 8
construed and enforced in accordance with, the laws of the State of New York
applicable to agreements made and to be fully performed therein (excluding the
conflicts of laws rules). The Acquiror irrevocably submits to the jurisdiction
of any court of the State of New York or the United State District Court for the
Southern District of the State of New York for the purpose of any suit, action,
or other proceeding arising out of this Agreement, or any of the agreements or
transactions contemplated hereby, which is brought by or against the Acquiror
and (i) hereby irrevocably agrees that all claims in respect of any such suit,
action or proceeding may be heard and determined in any such court, (ii) to the
extent that the Acquiror has acquired, or hereafter may acquire, any immunity
from jurisdiction of any such court or from any legal process therein, the
Acquiror hereby waives, to the fullest extent permitted by law, such immunity
and (iii) agrees not to commence any action, suit or proceeding relating to this
Agreement other than in such court. The Acquiror hereby waives, and agrees not
to assert in any such suit, action or proceeding, in each case, to the fullest
extent permitted by applicable law, any claim that (a) the Acquiror is not
personally subject to the jurisdiction of any such court, (b) the Acquiror is
immune from any legal process (whether through service or notice, attachment
prior to judgment attachment in aid of execution, execution or otherwise) with
respect to the Acquiror or its property or (c) any such suit, action or
proceeding is brought in an inconvenient forum.
9. The benefits of this Agreement shall inure to the parties
hereto, their respective successors and assigns and to the indemnified
parties hereunder and their respective successors and assigns and
representatives, and the obligations and liabilities assumed in this
Agreement by the parties hereto shall be binding upon their respective
successors and assigns.
10. Each of the Acquiror and Bear Stearns (and, to the extent
permitted by law, on behalf of their respective equity holders and creditors)
hereby knowingly, voluntarily and irrevocably waives any right it may have to
a trial by jury in respect of any claim based upon, arising out of or in
connection with this Agreement and the transactions contemplated hereby
(including, without limitation, any Transaction). Each of the Acquiror and
Bear Stearns hereby certifies that no representative or agent of the other
party has represented expressly or otherwise that such party would not seek
to enforce the provisions of this waiver. Further, each of the Acquiror and
Bear Stearns acknowledges that each party has been induced to enter this
Agreement by, inter, alia, the provisions of this paragraph.
11. If it is found in a final judgement by a court of competent
jurisdiction (not subject to further appeal) that any term or provision
hereof is invalid or unenforceable, (i) the remaining terms and provisions
hereof shall be unimpaired and shall remain in full force and effect and (ii)
the invalid or unenforceable provision or term shall be replaced by a term or
provision that is valid and enforceable and that comes closest to expressing
the intention of such invalid or unenforceable term or provision.
12. This Agreement embodies the entire agreement and understanding
of the parties hereto and supersedes any and all prior agreements,
arrangements and understanding relating to the matters provided for herein.
No alteration, waiver, amendment, change or addition hereto shall be
<PAGE> 9
Key Energy Group
May 8, 1998
Page 9
binding or effective unless the same is set forth in writing signed by a duly
authorized representative of each party.
13. The Acquiror has all requisite corporate power and authority
to enter into this Agreement and the transactions contemplated hereby
(including, without limitation, the Transaction). This Agreement has been
duly and validly authorized by all necessary corporate action on the part of
the Acquiror and has duly executed and delivered by the Acquiror and
constitutes a legal, valid and binding agreement of the Acquiror, enforceable
in accordance with its terms.
14. This Agreement does not create, and shall not be construed as
creating, rights enforceable by any person or entity not a party hereto,
except those who may be entitled thereto by virtue of paragraph 6 and the
Indemnification Provisions hereof. The Acquiror acknowledges and agrees
that: (i) Bear Stearns is being retained to assist the Acquiror in its
efforts to effect a Transaction and that Bear Stearns is not being retained
to advise the Company on, or to express any opinion as to, the wisdom,
desirability or prudence of consummating the Transaction and (ii) Bear
Stearns is acting as an independent contractor and is not and shall not be
construed as a fiduciary of the Acquiror and shall have no duties or
liabilities to the equity holders or creditors of the Acquiror or any other
person by virtue of this Agreement or the retention of Bear Stearns
hereunder, all of which are hereby expressly waived. The Acquiror also
agrees that Bear Stearns shall not have any liability (including without
limitation, liability for any losses, claims, damages, obligations,
penalties, judgements, awards, liabilities, costs, expenses or disbursements
resulting from any negligent act or omission of Bear Stearns) (whether direct
or indirect, in contract, tort or otherwise) to the Acquiror or to any person
(including, without limitation, equity holders and creditors of the Acquiror)
claiming through the Acquiror for or in connection with the engagement of
Bear Stearns, this Agreement and the transactions contemplated hereby
(including, without limitation, any Transaction), except to the extent it is
found in a final judgment by a court of competent jurisdiction (not subject
to further appeal) to have resulted primarily and directly from the gross
negligence or willful misconduct of Bear Stearns. The Acquiror acknowledges
that Bear Stearns was induced to enter into this Agreement by inter, alia,
the provisions of this paragraph.
15. The Acquiror expressly acknowledges that all opinions and
advice (written or oral) given by Bear Stearns to the Acquiror in connection
with Bear Stearns' engagement are intended solely for the benefit and use of
the Acquiror in considering the Transaction and the Acquiror agrees that no
such opinion or advice shall be used for any other purpose or reproduced,
disseminated, quoted or referred to at any time, in any manner or for any
purpose, nor shall any public references to Bear Stearns be made in writing
by the Acquiror, without the prior written consent of Bear Stearns, which
consent shall not be unreasonably withheld.
16. For the convenience of the parties, any number of counterparts
of this Agreement may be executed by the parties hereto. Each such
counterpart shall be, and shall be deemed to be, an original instrument, but
all such counterparts taken together shall constitute one and the same
Agreement.
<PAGE> 10
Key Energy Group
May 8, 1998
Page 10
If the foregoing correctly sets forth our Agreement, please sign the
enclosed copy of this letter in the space provided and return it to us.
Very truly yours,
BEAR, STEARNS & CO. INC.
By: /s/ Anthony J. Magro
------------------------
Managing Director
Confirmed and Agreed to
this 11th day of 1998:
Key Energy Group, Inc.
By: /s/ Stephen E. McGregor
--------------------------
Name: Stephen E. McGregor
Title: EVP & CFO
<PAGE> 11
INDEMNIFICATION PROVISIONS
The Acquiror (as such term is defined in the Agreement (as such term
is defined below)) agrees to indemnify and hold harmless Bear Stearns, to the
fullest extent permitted by law, from and against any and all losses, claims,
damages, obligations, penalties, judgments, awards, liabilities, costs,
expenses and disbursements (and any and all actions, suits, proceedings and
investigations in respect thereof and any and all legal and other costs,
expenses or disbursements in giving testimony or furnishing documents in
response to a subpoena or otherwise), including, without limitation, the
costs, expenses and disbursements, as and when incurred, of investigating,
preparing or defending any such action, suit, proceeding or investigation
(whether or not in connection with litigation in which Bear Stearns is a
party), directly or indirectly, caused by, relating to, based upon, arising
out of or in connection with (a) Bear Stearns' acting for the Acquiror,
including, without limitation, any act or omission by Bear Stearns in
connection with its acceptance of or the performance or non-performance of
its obligations under the agreement dated May 8, 1998 between Bear Stearns
and Key Energy Group, Inc., as it may be amended from time to time (the
"Agreement"), (b) any Transaction or Disposition (as such terms are defined
in the Agreement), or (c) any untrue statement or alleged untrue statement of
a material fact contained in, or omissions or alleged omissions from, any
filing with any Agency (as such term is defined in the Agreement) or similar
statements or omissions in or from any information furnished by the Acquiror
to Bear Stearns, the Company (or its Board of Directors or shareholders) or
any other person in connection with a Transaction or Disposition; provided,
however, such indemnity agreement shall not apply to any portion of any such
loss, claim, damage, obligation, penalty, judgment, award, liability, cost,
expense or disbursement to the extent it is found in a final judgment by a
court of competent jurisdiction (not subject to further appeal) to have
resulted primarily and directly from the gross negligence or willful
misconduct of Bear Stearns.
These Indemnification Provisions shall be in addition to any
liability which the Acquiror may otherwise have to Bear Stearns or the
persons indemnified below in this sentence and shall extend to the following:
The Bear Stearns Companies Inc., Bear, Stearns & Co. Inc., their respective
affiliated entities, directors, officers, employees, legal counsel, agents
and controlling persons (within the meaning of the federal securities laws).
All references to Bear Stearns in these Indemnification Provisions shall be
understood to include any and all of the foregoing.
<PAGE> 12
If any action, suit, proceeding or investigation is commenced, as to
which Bear Stearns proposes to demand indemnification, it shall notify the
Acquiror with reasonable promptness; provided, however, that any failure by
Bear Stearns to notify the Acquiror shall not relieve the Acquiror from its
obligations hereunder. Bear Stearns shall have the right to retain counsel
of its own choice to represent it, and the Acquiror shall pay the fees,
expenses and disbursements of such counsel; and such counsel shall, to the
extent consistent with its professional responsibilities, cooperate with the
Acquiror and any counsel designated by the Acquiror. The Acquiror shall be
liable for any settlement of any claim against Bear Stearns made with the
Acquiror's written consent, which consent shall not be unreasonably
withheld. The Acquiror shall not, without the prior written consent of Bear
Stearns, settle or compromise any claim, or permit a default or consent to
the entry of any judgment in respect thereof, unless such settlement,
compromise or consent includes, as an unconditional term thereof, the giving
by the claimant to Bear Stearns of an unconditional and irrevocable release
from all liability in respect of such claim.
In order to provide for just and equitable contribution, if a claim
for indemnification pursuant to these Indemnification Provisions is made but
it is found in a final judgment by a court of competent jurisdiction (not
subject to further appeal) that such indemnification may not be enforced in
such case, even though the express provisions hereof provide for
indemnification in such case, then the Acquiror, on the one hand, and Bear
Stearns, on the other hand, shall contribute to the losses, claims, damages,
obligations, penalties, judgments, awards, liabilities, costs, expenses and
disbursements to which the indemnified persons may be subject in accordance
with the relative benefits received by the Acquiror, on the one hand, and
Bear Stearns, on the other hand, and also the relative fault of the Acquiror,
on the one hand, and Bear Stearns, on the other hand, in connection with the
statements, acts or omissions which resulted in such losses, claims, damages,
obligations, penalties, judgments, awards, liabilities, costs, expenses and
disbursements and the relevant equitable considerations shall also be
considered. No person found liable for a fraudulent misrepresentation shall
be entitled to contribution from any person who is not also found liable for
such fraudulent misrepresentation. Notwithstanding the foregoing, Bear
Stearns shall not be obligated to contribute any amount hereunder that
exceeds the amount of fees previously received by Bear Stearns pursuant to
the Agreement.
Neither termination nor completion of the engagement of Bear Stearns
referred to above shall affect these Indemnification Provisions which shall
then remain operative and in full force and effect.
<PAGE> 1
EXHIBIT (b)(3)
[LETTERHEAD OF DAIN RAUSCHER WESSELS]
July 2, 1998
STRICTLY CONFIDENTIAL
Key Energy Group, Inc.
Two Tower Center, 20th Floor
East Brunswick, NJ 08816
Attn: Mr. Stephen E. McGregor
Executive Vice President and Chief Financial Officer
Gentlemen:
This letter (the "Agreement") will confirm our understanding that Key
Energy Group, Inc. ("Key" or the "Company") has engaged Dain Rauscher Wessels, a
division of Dain Rauscher Incorporated, ("Dain Rauscher Wessels") to act as its
financial advisor on a non-exclusive basis with respect to the matters outlined
herein.
A. We understand that Key is interested in evaluating a potential merger or
other form of business combination with Dawson Production Services, Inc.
("Dawson"). A merger or other combination with Dawson by Key is herein referred
to as a "Transaction", which term is herein defined further in Paragraph B(iii).
Dain Rauscher Wessels will serve as the Company's financial advisor on a
non-exclusive basis in connection with evaluating any merger or other
combination with Dawson. Services to be provided by Dain Rauscher Wessels
pursuant to this engagement will include, but not necessarily be limited to, the
following: (i) assisting you in evaluating publicly-available financial and
other information describing Dawson, as well as internal forecasts and other
non-public information which may be provided by Dawson; (ii) developing
financial models for use in evaluating the historical and projected financial
performance of Dawson; (iii) assisting you in developing strategies for
initially approaching Dawson regarding a Transaction, and subsequently
negotiating the terms of any merger with Dawson; (iv) assisting you and your
legal counsel in conducting operating, financial and legal due diligence
relating to a merger with Dawson; (v) assisting in the negotiation of a
definitive merger agreement and related documents; (vi) developing financial
models to evaluate the pro forma impact of a merger with Dawson on the financial
performance of the com-
<PAGE> 2
Mr. Francis D. John
July 2, 1998
Page 2
bined company; (vii) preparing and participating, if requested, in presentations
to your Board of Directors; and (viii) assisting you in such other related
matters as you may reasonably request.
B. The Company agrees to compensate Dain Rauscher Wessels for its services as
financial advisor pursuant to this Agreement as set forth below:
(i) The Company will pay Dain Rauscher Wessels a Retainer Fee of
$100,000, which amount shall be payable upon the execution of this
Agreement.
(ii) If Key determines it will require from Dain Rauscher Wessels a
fairness opinion ("Opinion") with respect to a Transaction, Dain
Rauscher Wessels will provide such Opinion pursuant to a separate
agreement providing for a Fairness Opinion Fee which shall be
mutually negotiated between the Company and Dain Rauscher Wessels.
The Fairness Opinion Fee shall be payable in cash upon the delivery
of the Opinion. Copies of the Opinion may be included in any proxy
statement or registration statement prepared in connection with the
Transaction and shown or provided to the shareholders of Key and
Dawson and any properly interested regulatory agencies in connection
with the contemplated Transaction without further expense to the
Company; however, copies may not be shown or provided to any other
person without the prior written approval of Dain Rauscher Wessels.
Further, the Opinion may not be quoted in part, paraphrased,
summarized or described in any writing, including the foregoing
proxy statement or registration statement, without the prior
approval of that portion of such writing by Dain Rauscher Wessels,
which approval will not be unreasonably withheld. Dain Rauscher
Wessels will provide the Company with updates of the Opinion as
reasonably requested by the Company, at no additional cost.
<PAGE> 3
Mr. Francis D. John
July 2, 1998
Page 3
(iii) If a Transaction is consummated (which term is herein understood to
mean legally closed without any remaining conditions relating
thereto) Dain Rauscher Wessels shall be paid a Transaction Fee equal
to $500,000, less the amount of any Retainer Fee previously paid by
the Company to Dain Rauscher Wessels pursuant to this Agreement.
As used herein, "Transaction" means any merger or other form of
business combination by, among or between Key and Dawson which
involves the acquisition by Key of at least a majority of the common
stock or assets of Dawson.
(iv) In addition, the Company agrees to reimburse Dain Rauscher Wessels,
upon request made from time to time accompanied by vouchers,
receipts or other evidence of expenditure, for its reasonable
out-of-pocket expenses incurred in connection with the performance
of its services under this Agreement. Such reimbursable
out-of-pocket expenses shall not exceed $50,000 without the prior
written approval of the Company.
C. Because Dain Rauscher Wessels will be acting on the Company's behalf in
performing its services under this Agreement, the Company agrees to indemnify
Dain Rauscher Wessels as set forth on Schedule 1 attached hereto, which is to be
considered an integral part of this Agreement.
D. This Agreement, unless earlier terminated, shall have an initial term of six
months from the date of execution hereof. During the initial term, this
Agreement may be terminated by the Company or Dain Rauscher Wessels providing
the other party with written notice of its desire to terminate the engagement
("Notice of Termination") without liability or continuing obligation to either
party except for any compensation earned or expenses incurred prior to the
Notice of Termination. Subsequent to the initial term, this Agreement shall be
automatically extended unless and until the Company or Dain Rauscher Wessels
provides the other party with a Notice of Termination. If at any time prior to
the expiration of twelve (12) months after delivery of a Notice of Termination a
Transaction is consummated, Dain Rauscher Wessels will be entitled to payment in
full of any applicable fees as
<PAGE> 4
Mr. Francis D. John
July 2, 1998
Page 4
described in Paragraph B of this Agreement. Upon any Notice of Termination, Dain
Rauscher Wessels will be entitled to prompt reimbursement of its out-of-pocket
expenses as described in Paragraph B. The indemnity provisions contained in
Schedule l to this Agreement will also remain operative and in full force and
effect regardless of any such Notice of Termination.
E. In order to coordinate the efforts contemplated by this Agreement, the
Company will endeavor to consult with Dain Rauscher Wessels on a regular basis
with respect to any discussions that the Company may initiate or any inquiries
that the Company may receive concerning a potential Transaction. Dain Rauscher
Wessels agrees to cooperate fully with the Company's other financial advisors.
F. Dain Rauscher Wessels acknowledges that inappropriate disclosure of this
Agreement or the nature and purpose of this engagement could have adverse
consequences to the Company's ability to transact and develop its business in an
orderly manner. Accordingly, Dain Rauscher Wessels shall only disclose
information regarding a potential Transaction to third parties after having
received approval from the Company for such disclosure. Dain Rauscher Wessels
agrees to maintain the confidentiality of all proprietary business information
that is disclosed to it by the Company, whether in verbal or written
communications, not to use such information for any purpose other than related
to its engagement hereunder, and to not disclose such information to any person
other than employees, legal counsel or other agents of Dain Rauscher Wessels who
are actively and directly participating in its engagement hereunder, or who
otherwise need to know the information for its work in connection with the
engagement, unless and until such information (i) becomes generally available to
the public other than as a result of disclosure by Dain Rauscher Wessels or (ii)
becomes available to Dain Rauscher Wessels on a non-confidential basis from a
source other than the Company, provided that such source is not bound by a
confidentiality agreement with the Company. The Company shall have the right to
review and approve, prior to distribution, the content of any documents relating
to the Company and prepared by Dain Rauscher Wessels in the performance of its
services hereunder.
G. The Company shall not be obligated to enter into any Transaction which may be
presented to it by Dain Rauscher Wessels, and Dain Rauscher Wessels shall have
<PAGE> 5
Mr. Francis D. John
July 2, 1998
Page 5
no authority to bind the Company in any manner whatsoever. If the Company elects
to consummate a Transaction presented to it by or as a result of the efforts of
Dain Rauscher Wessels, the final terms of the Transaction shall be subject to
negotiation by the Company.
H. This Agreement shall be governed by, and construed and enforced in accordance
with, the laws of the State of Texas. This Agreement shall be binding upon and
inure to the benefit of the Company, Dain Rauscher Wessels and their respective
successors and assigns.
<PAGE> 6
Mr. Francis D. John
July 2, 1998
Page 6
After reviewing this Agreement, please confirm that the foregoing is in
accordance with your understanding by signing and returning to me the duplicate
copy transmitted herewith, whereupon it shall be our binding agreement.
We are delighted to have this opportunity to continue our relationship
with Key Energy Group, Inc. We look forward to committing the considerable
resources of Dain Rauscher Wessels toward assisting you in the matters outlined
herein.
Very truly yours,
DAIN RAUSCHER WESSELS
a division of Dain Rauscher Incorporated
By: /s/ Joseph P. Cunningham
----------------------------
Joseph P. Cunningham
Managing Director
Accepted and agreed to:
KEY ENERGY GROUP, INC.
By: /s/ Stephen E. McGregor
------------------------------------
Stephen E. McGregor
Executive Vice President and Chief Financial Officer
<PAGE> 7
SCHEDULE I
Key Energy Group, Inc. (the "Company") agrees to indemnify and hold
harmless Dain Rauscher Wessels, a division of Dain Rauscher Incorporated ("Dain
Rauscher Wessels") and its officers, directors, agents, employees, and
controlling persons against any and all losses, claims, damages or liabilities
whatsoever to which they may become subject or which may be asserted against
them, (INCLUDING ANY LOSSES, CLAIMS, ACTIONS, DAMAGES AND LIABILITIES ARISING
OUT OF OR RESULTING FROM THE SOLE OR CONCURRENT NEGLIGENCE OF THE INDEMNIFIED
PARTY), and reimburse to each of them all reasonable costs and expenses
(including, without limitation of the generality of the foregoing, reasonable
costs of investigations and fees and expenses of attorneys, experts and
consultants selected by them) of defending or settling (providing any settlement
is approved in writing in advance by the Company) any such claim, in connection
with or arising out of the engagement of Dain Rauscher Wessels pursuant to, and
the performance by Dain Rauscher Wessels of the service contemplated by, this
Agreement, whether such results from Dain Rauscher Wessels's activities as
financial advisor to the Company, from the rendering of an Opinion stating Dain
Rauscher Wessels's conclusion regarding the fairness of a proposed Transaction
and other matters, from the forwarding of the Opinion from Dain Rauscher Wessels
to any appropriate regulatory agency concerning the same, from any reference to
such Opinion in any proxy statement or registration statement filed with such
agency, or otherwise, or directed to the Company's shareholders, or from any
other matter related to the rendering of the Opinion by Dain Rauscher Wessels,
except to the extent that such liabilities, losses, damages, claims or expenses
are found in a final judgment by a court of competent jurisdiction or by an
arbitrator to have resulted from gross negligence or willful misconduct by the
person entitled to indemnification under this paragraph, or such person
otherwise acknowledges or admits his gross negligence or willful misconduct.
Any sum payable by the Company pursuant to this paragraph shall be paid at
Houston, Texas. If for any reason the foregoing indemnification is unavailable
to Dain Rauscher Wessels or insufficient to hold Dain Rauscher Wessels harmless,
then the Company shall contribute to the amount paid or payable by Dain Rauscher
Wessels as a result of such loss, claim, damage or liability in such proportion
as is appropriate to reflect not only the relative benefits received by the
Company on the one hand and Dain Rauscher Wessels on the other hand but also the
relative fault of the Company and Dain Rauscher Wessels, as well as any relevant
equitable considerations.
Except as provided in the next following paragraph, the Company agrees to
reimburse to Dain Rauscher Wessels and its officers, directors, agents,
employees, and
<PAGE> 8
controlling persons at Houston, Texas, within ten days after presentation of any
statement by Dain Rauscher Wessels and its officers, directors, agents,
employees, and controlling persons, all reasonable expenses (including, without
limitation of the generality of the foregoing, fees and expenses of attorneys
selected by Dain Rauscher Wessels and its officers, directors, agents,
employees, and controlling persons but who are not unacceptable to the Company)
incurred in connection with any testimony it or its employees, are required to
give (in court, before a regulatory agency, by deposition, or otherwise) in any
regulatory or court proceeding (including depositions), whether or not Dain
Rauscher Wessels or its officers, directors, agents and controlling persons is a
party, and which related to the proposed Transaction, the Opinion, the
preparation of the Opinion, or any proxy statement or registration statement, or
other communication directed to the Company's shareholders in connection with
the Opinion.
Each person who may assert a claim for indemnity or contribution hereunder
("Indemnified Party") agrees that, in the event any action (with respect to
which indemnify or reimbursement from the Company may be sought by such
Indemnified Party on account of agreements contained herein) shall be brought or
threatened against such Indemnified Party, prompt notice will be given to the
Company in writing of such action, together with a copy of all papers served on,
or received by, such Indemnified Party in connection with such action. If such
an event occurs, the Company shall have the right to assume the defense of such
action, including the employment of counsel and the payment of all expenses.
Such Indemnified Party shall have the right to employ separate counsel in any
such action and to participate in the defense thereof, but the fees and expenses
of such counsel shall be at the expense of such Indemnified Party, unless (a)
the employment thereof has been specifically authorized by the Company in
writing; (b) the Company has failed or refused to assume the defense and employ
counsel, or is contesting its obligation of indemnity hereunder; or (c) the
named parties or parties threatened to be named, to any such action (including
any impleaded parties or parties threatened to be impleaded) include both such
Indemnified Party and the Company and such Indemnified Party has been advised by
such counsel that there may be one or more material legal defenses available to
it/them which are different from or additional to those available to the Company
(in which cases such Indemnified Party shall have the right to employ its/their
own counsel and in such cases any reasonable fees and expenses of such counsel
shall be paid by the Company). In no such event, however, shall the Company be
required to pay the fees and expenses for more than one additional counsel.
<PAGE> 1
EXHIBIT (c)(2)
August 8, 1998
Dawson Production Services, Inc.
112 E. Pecan Street, Suite 1000
San Antonio, Texas 78205
Ladies and Gentlemen:
The parties (the "Parties" and, individually, a "Party") to this letter
agreement (the "Letter Agreement") are considering a negotiated transaction that
would constitute a combination of the Parties (a "Transaction"). In that
connection, each Party or its Representatives (as hereinafter defined) may
furnish, orally, electronically, in writing or by inspection, to the other Party
and its Representatives certain information, material and documents regarding
the former Party and its business, assets, financial condition, results of
operations and prospects that may be helpful to the latter Party in evaluating
and/or negotiating a potential Transaction. Such information, material and
documents furnished pursuant to this Letter Agreement, and all notes, analyses,
compilations, studies or other documents, whether prepared by either Party or
its Representatives, which contain or otherwise reflect such information,
material or documents, are herein called the "Evaluation Material". The term
"Evaluation Material" does not include information which (i) is or becomes
generally available to the public other than as a result of a disclosure by the
receiving Party or its Representatives in violation of this Letter Agreement,
(ii) was available to the receiving Party prior to its disclosure by the
providing Party or its Representatives or (iii) was or becomes available to the
receiving Party from a source other than the providing Party or its
Representatives without any violation known to the receiving Party of any duty
or obligation owed by the source to the providing Party.
As a condition to the furnishing of Evaluation Material by one Party
hereto to the other Party, each Party agrees with the other as follows:
1. All Evaluation Material furnished by one Party or its Representatives
to the other Party or its Representatives shall be deemed confidential and shall
be kept and maintained by the latter Party and its Representatives under
appropriate safe guards. All Evaluation Material shall be used by such Party
solely for the purpose of evaluating or negotiating a possible Transaction and
shall not be used for any other purpose or for any purpose detrimental to any of
the Parties, including, without limitation, in any litigation now or hereafter
commenced between the Parties, in any
<PAGE> 2
tender offer initiated by any of the parties, or in any proxy solicitation
involving the Parties. All Evaluation Material shall be kept confidential by
such Party and its Representatives for a period of two (2) years from the date
hereof. Notwithstanding the foregoing, the Parties agree that (i) any of such
information may be disclosed to directors, officers, employees or other
representatives of a Party (the directors, officers, employees and other
representatives being collectively called such Party's "Representatives") who
need to know the Evaluation Material for the purpose of evaluating a possible
Transaction, it being understood that (a) such Party's Representatives shall be
informed of the confidential nature of the Evaluation Material and shall be
directed to treat it confidentially and not to use it other than for the
purposes described above, (b) no Evaluation Material may be disclosed to any
litigation attorney for any Party who is involved in any litigation now or
hereafter pending between the Parties and (c) in any event, each Party shall be
responsible for any breach of this Letter Agreement by any of its
Representatives; (ii) any disclosure of a Party's Evaluation Material may be
made to the extent required by law or regulation (including Regulation 14A and
14D under the Securities Exchange Act of 1934) or to which such Party consents
in writing; and (iii) the restrictions set forth herein shall be without
prejudice to any Party's right to commence and conduct any tender offer, proxy
solicitation or litigation (including, without limitation, the right to seek
material constituting Evaluation Material through the discovery process).
2. Both Parties agree to use their best efforts to safeguard the
Evaluation Material from disclosure to anyone other than as permitted hereby,
and neither Party will distribute the Evaluation Material relating to the other
Party to anyone other than as permitted hereby without prior written
authorization from such other Party.
3. Without the prior written consent of the other Party, such Party will
not disclose, and will not permit its Representatives to disclose, to any person
other than those permitted hereunder to have access to the Evaluation Material
(i) the fact that the Evaluation Material has been made available to such Party
or that such Party has inspected any portion of the Evaluation Material, (ii)
the fact that discussions or negotiations are taking place concerning a possible
Transaction or (iii) any of the terms, conditions or other facts with respect to
any such possible Transaction, including the status thereof, except as required
by law, regulation (including Regulations 14A and 14D under the Securities
Exchange Act of 1934), legal process or stock exchange policy.
4. If either Party or its Representatives is requested or required (by
oral question, interrogatories, requests for information or documents, subpoena,
Civil Investigative Demand, or similar process) by any court or governmental
agency or
2
<PAGE> 3
authority to disclose any of the other Party's Evaluation Material, the Party
receiving such request or demand will provide the other Party with prompt notice
of such request or demand so that such other Party shall have an opportunity to
seek an appropriate protective order. In addition, each Party agrees to take all
reasonable steps necessary to prevent disclosure of such other Party's
Evaluation Material, including seeking an appropriate protective order, or, if
the information is required to be disclosed, confidential treatment. It is
further agreed that, if, in the absence of a protective order, either Party or
any of its Representatives is legally required to disclose information
concerning the other Party, such Party or its Representatives may disclose such
information without liability hereunder, but neither Party shall be relieved of
any liability hereunder for any previous disclosure by such Party or any of its
Representatives that was not permitted by this Letter Agreement. In addition,
the disclosure of Evaluation Material by either Party shall not be deemed a
waiver of its right to challenge or object to the production thereof pursuant to
any discovery request or subpoena.
5. If the Parties do not proceed with the Transaction which is the subject
of this Letter Agreement, within a reasonable time and in any event within
thirty (30) days after being so requested by the other Party hereto, a Party
shall redeliver to the other all Evaluation Material which such Party has
received from the other, including without limitation all copies, extras or
other reproductions of such Evaluation Material, and each Party will destroy all
Evaluation Material prepared by it or its Representatives based upon the
Evaluation Material supplied by the other Party (including all written material,
memoranda, notes and other writings or recordings whatsoever). Upon request by
the other Party, such destruction shall be certified in writing to the other
Party by one of the destroying Party's Representatives who shall supervise such
destruction.
6. Each Party understands and acknowledges that any and all information
contained in the Evaluation Material is being or will be provided by the other
Party without any representation or warranty, express or implied, as to the
accuracy or completeness of the Evaluation Material so provided, except as set
forth in any Transaction Agreement. It is further understood that the scope of
any representations and warranties to be given by a Party with respect to any
Evaluation Material in the Transaction Agreement will be negotiated along with
other terms and conditions thereof if discussions between the Parties should
progress to that point.
7. Each Party hereto hereby acknowledges that such Party is aware (and
that its Representatives who are apprised of this matter have been advised) that
the United States securities laws prohibit such Party, its Representatives and
any other
3
<PAGE> 4
person or entity who has received material non-public information about the
other Party from purchasing or selling securities of the other Party or from
communicating such information to any person under circumstances under which
such other person may be expected to purchase or sell securities of the other
Party.
8. Each Party understands and agrees that no contract or agreement
providing for a Transaction between the Parties shall be deemed to exist between
the Parties unless and until a definitive written agreement setting forth the
terms, conditions and other provisions relating to a Transaction (a
"Transaction Agreement") has been executed and delivered, and each Party hereby
waives, in advance, any claims (including without limitation breach of contract)
based on any alleged agreement between the Parties to effect a Transaction
unless and until a Transaction Agreement between the Parties shall have been
executed and delivered. Each Party also agrees that, unless and until a
Transaction Agreement between the parties has been executed and delivered, the
other Party has no legal obligation of any kind whatsoever to negotiate with a
view to entering into a Transaction Agreement or to engage in a Transaction by
virtue of this Letter Agreement or any other written, electronic or oral
expression with respect thereto. For purposes of this Letter Agreement, the
"Trans action Agreement" does not include an executed letter of intent or any
other preliminary written agreement nor does it include any written, electronic
or verbal acceptance of an offer or bid on the part of either Party.
It is further understood and agreed that money damages would not be a
sufficient remedy for any breach of this Letter Agreement by either Party or its
Representatives and that without prejudice to any rights or remedies at law or
in equity otherwise available to the other Party, such other Party shall, if the
other Party breaches any provision of this Letter Agreement, be entitled to
injunctive relief, specific performance or other appropriate equitable remedies
for any such breach. No failure or delay by either Party in exercising any
right, power or privilege hereunder shall operate as a waiver thereof nor shall
any single or partial exercise thereof preclude any other or further exercise
thereof or the exercise of any other right, power or privilege hereunder.
This Letter Agreement shall be binding upon the successors and assigns of
each Party hereto and shall inure to the benefit of, and be enforceable by, the
successors and assigns of each such Party.
The provisions of this Letter Agreement shall be severable if any of the
provisions hereof are held by a court for competent jurisdiction to be invalid,
void or
4
<PAGE> 5
otherwise unenforceable, and the remaining provisions shall remain enforceable
to the fullest extent permitted by law.
This Letter Agreement shall be construed (both as to validity and perfor-
mance) and enforced in accordance with and governed by, the laws of the State of
Texas applicable to agreements made and to be performed wholly within such
jurisdiction.
This Letter Agreement may be waived, amended or modified only by an
instrument in writing signed by the Party against which such waiver, amendment
or modification is sought to be enforced, and such written instrument shall set
forth specifically the provisions of this Letter Agreement that are to be so
waived, amended or modified.
This Letter Agreement may be executed in any number of counterparts, each
of such counterpart shall for all purposes be deemed an original and all such
counter parts shall together constitute but one and the same instrument.
Please indicate your agreement with the foregoing by executing the
accompanying copy of this Letter Agreement and returning it to us, whereupon
it shall constitute a binding agreement between us as of the date first above
written.
Very truly yours,
KEY ENERGY GROUP, INC.
By: /s/ JACK D. LOFTIS, JR.
--------------------------
Name: Jack D. Loftis, Jr.
Title: General Counsel
MIDLAND ACQUISITION CORP.
By: /s/ JACK D. LOFTIS, JR.
--------------------------
Name: Jack D. Loftis, Jr.
Title: Secretary
5
